In a move similar to all administration, Trump and his administration are starting to publish their administration goals at whitehouse.gov, replacing publications by those of the previous admnistration. The web allows us to see these quickly– on the day he is sworn in. For those here, the energy page is probably the most interesting:
https://www.whitehouse.gov/america-first-energy
It starts with
Energy is an essential part of American life and a staple of the world economy. The Trump Administration is committed to energy policies that lower costs for hardworking Americans and maximize the use of American resources, freeing us from dependence on foreign oil.
You can read the rest yourself. I see no mention of the need to consider “climate change” when developing energy sources; it does mention the need for energy to be clean and preserve the environment. It also states “President Trump is committed to eliminating harmful and unnecessary policies such as the Climate Action Plan and the Waters of the U.S. rule”.
Obaman’s page discussing his administrations climate action plan is down: https://www.whitehouse.gov/climate-change
Not wasting any time are they. Good!
[hmm: When I first clicked the link, I loaded a Trump/Pence White House page that said what amounted to ‘stay tuned, we’re updating this!’ but now I get page not found.]
Mark,
It’s pretty standard to not waste time on that. Same with road signs like “Welcome to Illinois, Governor (Current not former)”
Elected officials don’t leave up the policies and “welcome” signs of the former office holders. We pages take so little time to take down, of course the old ones are down, the news ones are being uploaded. Not a big surprise.
To bad they don’t mention nuclear.
RickA,
Agreed.
No more mortgage company ads on Yahoo saying things like: “Obama urges homeowners to refinance now.” I really doubt that Obama said any such thing as he still had a 5.625% mortgage on his own home in Chicago when 4.0% rates were available.
I’ll be curious to see if there are any ‘Trump urge’s ads in the near future.
Have they deleted the references to Obama from the Presidential biographies?
Has anyone seen Bridge of Spies? I could have sworn that one of the pictures on the wall was Trump. None of these guys look similar,
https://en.wikipedia.org/wiki/Leadership_of_East_Germany
” if there are any ‘Trump urge’s ads in the near future.”
There will probably be lots of this from the government, while the media goes out of its way to ignore him. Remember those tax refunds that said Austin, TX?
MikeN,
There’s a large paper tax return processing center employing over 2,000 people in Austin. It’s scheduled to close in 2024 due to increased electronic filing. My wife used to work there.
Needless to say, the National Treasury Employees Union is up in arms about this and two other locations proposed closing.
DeWitt (#157558) –
Out of curiosity, does that tax return center operate year-round, or only for a couple of months every year? I’d think that there’d be a high volume in Feb-Apr (say), enough to keep many folks busy, but then only a trickle the remainder of the year.
Of course, E-file ought to eliminate a fair proportion of the labor.
RickA : To bad they don’t mention nuclear.
____
Nuclear is a threat to coal.Trump likes coal.
Natural gas is a threat to coal. Trump has to straddle the fence because he likes both.
Down the road, nuclear is a threat to natural gas, but Trump will be out of office before then.
Daily Caller noticed too.
The Trump Administration is committed to energy policies that lower costs for hardworking Americans and maximize the use of American resources, freeing us from dependence on foreign oil.
______
I’m not sure we can have both. We can reduce our foreign dependence by taxing oil imports, which would make oil more expensive, and stimulate more costly methods of domestic drilling. But this would raise rather than lower the cost of fuel to Americans. We can do both only if ways can be found to reduce the expense of drilling new wells.
Then there’s the question of whether the more rapid depletion of domestic reserves is a good idea for the long term.
Max, US oil consumption has been flat to a slight decline over the last 10-15 years, around 19.5 million barrels per day.
http://www.voxeu.org/sites/default/files/image/FromMay2014/obstfeld%20fig2%208%20jul.png
Meanwhile production has gone from 5 to 9 million barrels per day.
http://www.tradingeconomics.com/united-states/crude-oil-production
Percentage wise, an 80% dependance reduced to 50%. Oil reserves have doubled.
Prices have fallen over a shorter time period, though I remember a time when they were below $2 a gallon around 2011.
https://en.wikipedia.org/wiki/Oil_reserves_in_the_United_States
Lucia, SS benefit is calculated based on a formula of that includes
sum(earnings in year N, adjusted to reflect change in wage level from year N to wage level in year X) where X is 2 years before retirement.
After this first payment, later payments are based on COLA.
There is an additional factor where taxes are calculated based on wage inflation.
For example, 2017 has .3% COLA but tax level has gone from 119,000 to 128,000.
One fix that has been promoted is to change the wage indexing to price indexing.
The trust fund running out is not the problem, nor when the annual social security surplus turned to a deficit. The problem started as soon as the surplus was lower than the previous year’s surplus, I think 2007. After that, each year the government had billions of dollars less than it had the year before that it had to make up elsewhere.
Yes, MikeN, U.S. oil consumption has increased little over the past few decades.
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MTTUPUS2&f=A
The increase in domestic production was driven by high oil prices. With the price of oil as low as it is now, there’s a lack of incentive to add to the production by drilling for more oil.
A few years ago high oil prices encouraged the drilling of new wells and the added supply helped drive the price of oil down, but unfortunately for drillers, down too far to make much additional drilling profitable, especially when fracing was required as it’s an expensive method. Consequently, fewer well are being started. A tax on foreign oil imports would raise oil prices, the higher prices would stimulate drilling activity, and the added domestic supply would make us less dependent on foreign oil.
The state of drilling activity in early 2016 is summed up in the following excerpts from an article in the Houston Chronicle, April 15, 2016:
“Both Texas and the U.S. saw a net loss of three rigs in the past week, according to weekly data compiled by Baker Hughes. That leaves a U.S. total of 440 rigs, including 89 gas-seeking rigs, which represents the lowest total count since the oil field services company first began compiling the data in 1944.â€
“Analysts have projected the rig count would dip through most of the first half of 2016. The oil rig count is now down more than 78 percent from its peak of 1,609 in October 2014 before oil prices began plummeting.â€
“While many companies have stopped actively drilling new wells, it hasn’t stopped them from producing oil from existing wells. So oil production is taking much longer to fall than the rig count.â€
http://fuelfix.com/blog/2016/04/15/the-oil-rig-count-downward-trend-continues-in-texas-u-s/
MIkeN
Yes. I’ve been saying I favor this change. I think indexing to earned wages makes more sense than to prices.
I’m not really getting into everything else about SSN. Just that COLA is the wrong way to index. If you are going to index, it should be wage indexing. That’s more generationally fair if the first place and also creates a better match between what can be paid for and what is sort of promised to retirees who paid in.
Lucia said: “I’m not really getting into everything else about SSN. Just that COLA is the wrong way to index. If you are going to index, it should be wage indexing. That’s more generationally fair if the first place and also creates a better match between what can be paid for and what is sort of promised to retirees who paid in.”
_____
Lucia, I’m not familiar with the wage index, but I’m guessing it’s a measure of changes in total wages earned by workers and, starting at some point in the past, would have resulted in smaller increases to Social Security checks than increases based on the Consumer Price Index. However, an index of changes in wages doesn’t account for the number of workers and too few workers is the problem for Social Security. What am I missing here?
Lucia: “Just that COLA is the wrong way to index. If you are going to index, it should be wage indexing.”
.
Indexing should be done in such a way as to guarantee the solvency of the system. Each year, set the adjustment at the largest value that, if continued for N years, will not result in the trust fund going into the red. Standard actuarial procedures should be used for the calculation. N should be large enough to minimize volatility and small enough for the projections to not be a total fiction. Perhaps N=30 or N=40.
.
If Congress perceives that the adjustments are too small, they could make adjustments to the contribution rules or retirement age. One of the biggest threats to Social Security is the perception that it will go broke. The above rule would guarantee that can’t happen.
Max_OK,
What you’re missing is the accounting fiction known as the Social Security Trust Fund. Social Security taxes exceeded Social Security benefit payments until 2010. The excess went into special Treasury bonds, which means it gets spent.
During the government shutdown over the debt ceiling in 2011, it was not at all clear that the government would have the money on hand to pay Social Security benefits. So when Obama’s Treasury Secretary Jack Lew, who, by the way, had investments in the Cayman Islands before he became director of the Office of Management and Budget, said in February, 2011:
He was being disingenuous at least if not flat out lying.
If the Social Security trust fund had invested in real assets, as opposed to T-bills, he would have been correct. But the T-bills in the SS trust fund cannot be sold to the general public for cash. They have to be redeemed by the Treasury using general revenues or by borrowing money. That can’t happen if the budget is already in deficit and the debt ceiling has been exceeded.
The SS trust fund exists only to authorize the SSA to pay benefits at current levels even when SS taxes do not provide enough money. I.e., it’s an accounting fiction. SS taxes used to reduce the overall federal deficit. Now they are increasing it and the problem will get worse every year. The Social Security Disability trust fund is already technically empty. It’s being kept afloat by diverting SS taxes. Which means that the SS trust fund will be depleted sooner.
If SS were truly pay as you go, current benefits would be tied directly to current revenues. That would be true wage indexing. Taking the cap off taxing income doesn’t reduce the problem unless you cap benefits based on the old income cap. At that point, you might as well give up the pretense that Social Security is insurance rather than an income transfer program.
DeWitt: “If the Social Security trust fund had invested in real assets, as opposed to T-bills, he would have been correct. ”
So you’re telling me that if I invest my retirement funds in T-bills, I might as well just give all the money away, since T-bills are worthless? Doesn’t sound right to me.
Mike M.
No. You can sell your T-bills at any time on the open market. The SSA can’t.
Mike M.
Social Security is essentially a Ponzi scam. It works fine as long as it collects more than it pays out. It collapses when that is no longer true. Note that if the economy and wages were growing fast enough, the number of workers could decline some without a problem. But that isn’t true at the moment either.
Then there is the additional problem of increased life expectancy forcing a further increase in lifetime benefits unless the retirement age is adjusted to compensate. It’s been adjusted, but not by nearly enough. If the life extension folks are correct, this problem is going to get a lot worse a lot faster.
Right – the special issue bonds are not traded – they sit in a filing cabinet somewhere. So social security “trust fund” isn’t invested in anything ( and because the special issue bonds are not traded, their true value isn’t evaluated, but it’s probably close to zero ). I guess by law, the SS payouts do go to pay as you go when the mythical fund is expended. Current estimates are about 75% of obligated payout rates. That’s not 0%, but a big shock if it happened. If Japan is a guide to what will happen here, the government continues to pay for the elderly, but at the cost of general standards of living. Aging societies ( and shrinking societies ) will be a big issue globally going forward.
DeWitt: “No. You can sell your T-bills at any time on the open market. The SSA can’t.”
A distinction without a difference. If the government can afford to redeem T-bills, then the ones held by the SSA are fine. If the government can not afford to redeem T-bills, then they are worthless in the open market.
Hilarious article on this subject at Quartz.
“as Trump was sworn in, and just as the UCLA event kicked off, some of their fears began to come true: The climate change-related pages on whitehouse.gov disappeared.”
“Hackers” are apparently scraping all gov data to archive externally in case history is rewritten. Tin-foil hattery.
Mike M.
Redeeming T-bills takes them off the books so a new bond can be sold. There is no change in total debt. The Treasury will only redeem a bond when it matures. Savings bonds are an exception to that, but that’s not what the SSA holds
https://www.treasurydirect.gov/indiv/research/indepth/tbonds/res_tbond_sell.htm
Note: That’s sell, not redeem.
The SSA cannot transfer their bonds, so they can’t sell them. When the bonds mature, they’re just replaced with new bonds. That also has no effect on the total government debt. A redemption, however, requires that someone ante up real money. With the government continually in deficit, that means an increase in the general debt because SSA bonds are not on the books.
The real problem is that SS revenues are no long reducing the actual deficit, but contributing to it. The existence or non-existence of the SSA trust fund makes absolutely no difference.
Jit,
Doesn’t the wayback machine already take care of that?
https://archive.org/web/
Mike M.
Suppose Congress authorized the continuation of full benefits when the SS trust fund is depleted. Total government expenditure wouldn’t change absent SS COLA. The money being paid before depletion would still be coming from SS taxes, general revenue and borrowing. Total expenditure would only drop if benefits were reduced to the amount of incoming SS taxes.
Only the government gets to use this flaky accounting system.
The last time I checked, an inflation adjusted annuity would cost about twice as much for the same annual payout as Social Security. That’s for the maximum benefit. Low income earners get an even better deal.
Max: “Then there’s the question of whether the more rapid depletion of domestic [oil and gas] reserves is a good idea for the long term.”
.
The “long term” has many factors over many intervals. The key is balancing the consumption of depleting resources to time their application to provide the most economic benefit of each (from a running fifty-year projection). I think conservatives believe coal has some more time but can be phased out in 10-20 years. The more gradually coal is phased out the less oil and gas are used to replace it. Then oil is replaced (with electric) for cars and gas (with nuclear, solar and wind) for power generation, and we continue with gas for heating until hopefully nuclear fusion give cheap grid power. Solar and wind will be economical for remote off-grid and grid back-up.
.
If our mature society accepts that earthquakes, floods and droughts are sure to occur at some point then we would be wise to spend resources in preparation for them. The only long-term problem I am somewhat concerned about with global warming is sea level rise. That will be gradual and allow time for coastal mitigation. Also, if we can imagine the possibility of geo-engineering now that means it would be a certainty by 80 years. Jules Verne invented the concept in 1889 with The Purchase of the North Pole. Except there, instead of saving the environment, it was a scheme to shift Earth’s axis to turn Baffin Island tundra into Miami Beach (and visa versa).
DeWitt: “that means an increase in the general debt because SSA bonds are not on the books.”
No, the money owed to the trust fund is part of the debt and money borrowed from the trust fund counts as part of the deficit.
https://en.wikipedia.org/wiki/National_debt_of_the_United_States
https://en.wikipedia.org/wiki/United_States_federal_budget#Debt_categories
DeWitt,
“Social Security is essentially a Ponzi scam.”
.
Yes, and with Congress standing in for Ponzi! Ponzi went to jail of course, but Congress gets away with it.
.
The scam’s victims will be all the people who will never come close to recovering their inflation adjusted ‘contributions’ to SS. I guess a more accurate description would be a ‘modified Ponzi scam’, since it has gradually been changed to include considerable wealth transfer. SS provides vastly greater benefits to lower income people, relative to their total contributions, than to higher income individuals. Those with other taxable income in addition to SS benefits also pay income tax on the SS benefits at their last dollar tax rate… reducing their net benefit relative to total contributions even more. My chance of ever recovering my inflation adjusted lifetime contributions is zero.
.
Having been through long discussions of this subject multiple times with multiple people, I suspect no level of explanation will ever convince those who want to believe the ‘trust fund’ is real instead of an accounting fiction. It is the financial equivalent of trying to convince some people that “back radiation” from GHG’s in the atmosphere doesn’t violate thermodynamics.
Mike M,
If the bonds held by SS are just “more Federal Debt”, then why not simply convert them all to normal Treasury bonds? The answer, of course, is that they are most certainly NOT just more Federal debt. They are a ‘special debt’, the required repayment of which Congress can at any time reduce, or even zero out, by a simple reduction in defined SS benefits. Which is almost certainly what they will do at some point in the next decade or so… perhaps in combination with somewhat higher Federal taxes.
.
Congress can’t do that with real debt… real debt must be paid in cash to the bond holder on a date certain. SS is basically a Ponzi scheme… with a substantial wealth transfer component.
.
‘Back radiation’ from GHGs in the atmosphere is real as well.
Max_OK
Yes.
No. It doesn’t account for that.
I have no idea what you are missing.
I think a wage index would better than a COLA in many ways. You are describing to me what a wage index is: Yes. That’s what what a wage index is. That’s what I prefer to a COLA.
MikeM
I disagree. The indexing doesn’t need to be “the way” we achieve solvency. Solvency can be achieved other ways. I think if we are going to do indexing, it should be done in a fairer way. Wage indexing is fairer than COLA.
Lucia: “The indexing doesn’t need to be “the way†we achieve solvency.”
I agree. I already said that. I just think we need a backstop to guarantee that the trust fund does not become insolvent.
Mike M.
Certainly, if SS is to not die, a method of keeping it funded needs to be found. My only point is that doesn’t need to be the method of indexing. I know other people are discussing how to keep it solvent, and I think that’s an interesting discussion. It’s just that my comment happens to apply to a narrower focucs: What’s the fair way to index if it’s done? COLA is and always was the wrong way.
It seems many people seem to be interpreting my comment on indexing to have something to do with figuring out how to “save” SSN. While it is true that given the trajectories of waves and inflation over the past several decades wage indexing would have helped the budget, that has not been my point. My point is wage indexing is fairer and better than COLA.
> I think indexing to earned wages makes more sense than to prices.
You have it backwards. The recommended change is to switch FROM wage indexing TO price indexing. You would be lowering the value of the first check, and thus later checks whose COLA formula would stay the same. I don’t comprehend the logic of wage indexing instead of COLAs for benefit increases. The only reason for any benefit increase is to adjust for price increases. Why should your payout be increased because other people are earning more money?
Lucia, replacing the CPI with the wage index will save money going to Social Security only if the CPI outpaces the wage index from now on. If it does, wage earner standard of living will decline. I hope not.
On the other hand, if the wage index rises faster that the CPI, the switch will raise the cost of Social Security. I’m not sure which is more likely.
I brought up the number of workers because the main problem for Social Security is there aren’t enough workers. The only way to immediately change the population’s age distribution problem is too import lots of young workers and insist they leave their parents behind. A longer range solution is too encourage couples to have more children. But I doubt these solutions can gain broad support.
Eventually the age distribution problem should tend to self-correct, unless birth rates fall to less than replacement and immigration dries up.
Mike M. (Comment #157598)
January 21st, 2017 at 1:22 pm
DeWitt: “No. You can sell your T-bills at any time on the open market. The SSA can’t.â€
A distinction without a difference. If the government can afford to redeem T-bills, then the ones held by the SSA are fine. If the government can not afford to redeem T-bills, then they are worthless in the open market.
_____
I agreed with MikeN. I am confident in both types of T-bills, although a little less confident now that Trump is President.
SteveF said: ” SS is basically a Ponzi scheme… with a substantial wealth transfer component.”
SteveF, I disagree. Younger people pay into SS, older people get SS, older people die, and younger people get older people’s assets.
That’s no Ponzi scheme. Madoff, now there was real Ponzi scheme.
Max_OK
Of course.
I hope not too. But that has nothing to do with my argument that linking to wage increases is more fair. If the standard of living declines or increases it makes sense for that to affect all generations equally.
Max_OK
The younger generation only gets older people’s assets if the older people don’t spend everything they have and have assets to pass on.
Even when older people do, if the assets are due to over-generosity of SSN, the inheritance will be uneven. Inheritance is already uneven, but there is no reason why we should have a government program that makes it more uneven.
Hi DeWitt,
did I understand you correctly that an inflation adjusted annuity would cost twice the total contribution to the SS system of an individual? Can you buy an annuity on monthly installments over 35 years? Suppose it was whole life rather than an annuity? Or whole life convertible to an annuity?
I’m not trying to be picky, but I had thought that SS was not a good deal and that if you did the investments yourself you could do better.
Max, SS is a Ponzi scheme in that the initial beneficiaries do not pay in. After all the initial beneficiaries that did not pay from the start are gone, which we are nearing, then its a fair playing field if retirees get the same as they put in. Then at some point the music stops, like when there are too many beneficiaries and not enough payers. Then all the people that payed before they retired lose their money. It is very much like a Ponzi scheme. It just runs longer since it’s legal.
.
Max: “If the government can not afford to redeem T-bills, then they are worthless in the open market.”
.
Actually, as long as T-bill can be sold on the open market they do have value. The government is not normally the buyer, another investor is.
.
Lucia: “If the standard of living declines or increases it makes sense for that to affect all generations equally.”
.
Yes, a wage index would more closely match the overall standard of living, which is what the retirement entitlement is relative to. Also, the higher the wages the more funding to the program to keep it solvent.
.
Should we form a legislative petition? I think we should.
Mike N
In which case, I oppose that.
You would be lowering the value of the first check, and thus later
Huh. I don’t see why your thinking this is the “only reason” would begin to make it the “only reason”. Perhaps it’s something you favor for some reason that I can’t begin to understand. But that doesn’t make your favored “reason” the “only reason”. It doesn’t even make matching inflation “a” reason that makes any sense.
People paid in in proportion to their earnings (i.e. wages) at the time, and so they deserve to get out in proportion to earnings (wages). That means they can keep a place within the prevailing wage bracket and so stay even with respect to the wage bracket in which they earned. If that happens to fall, there is no reason why being retired should shield them. If that happens to rise, happy event!
There’s nothing sane about the notion that a government program will ensure that people will match ‘inflation’. They didn’t pay relative to “costs”, they paid relative to their wages.
FWIW mike, Newsweek seems to be under the impression the current system is to have SSN ratched up using cost of living
http://www.newsweek.com/here-how-much-social-security-increase-2017-512590
Whether we currently use COLA or wages, I think pegging to wage increases is a fairer, better, saner choice.
Lucia, someone retiring in 2020 at age 62-
Check Jan 2020 will be adjusted based on wage increases of general population.
Check Jan 2021 will be adjusted from Jan 2020 check based on price inflation, COLA.
All later checks are also COLA based.
One proposed change is to reduce the Jan 2020 number to have that be based on price inflation instead of wages. This would affect the Jan 2021 check as well since it is Jan 2020 *(1+COLA).
i think people should get out what they paid in. Thus a COLA adjustment would help prevent the government giving them back what they paid in with cheaper dollars.
Staying even with overall public earnings doesn’t seem like a relevant factor to me. I would switch the first check to price indexing as well.
Mike N
So, if I’m getting this right:
* Right now and in the past, it was adjusted based on COLA, (which I think is a bad choice.)
* in the future (2020) it will be adjusted based on wages. (I support that. But I would like to see it go on for more than 1 year.)
* afterwhich, for some mysterous reason, they are going back to the silly COLA adjustment (which I think is a bad choice.)
I’m mystified how they know whether the 2020 adjustment based on would be higher based on COLA rather than wages. 2020 is in the future. I don’t know whether inflation or wages will rise more in 2020 or 2019 and presumably no one else does either.
Clearly changing back and forth for 1 year is stupid. They should just change to increases based on wages and just stick with that. The sooner the better.
MikeN
If you think that, then logically, the government should just give them back the amount they would get by investing in government bonds. Neither COLA or wage adjustment is required. People just clip coupons. If inflation happens, it happens. Just like inflation happens for people who invest in real estate, the stock market, put their money in the bank or others who invest in government bonds.
Doesn’t seem like it to you. But does to me. It would then replace what they could earn if they were able to continue working in the field they worked in previously. That seems like a perfectly relevant factor to me even if it might not to you.
Max,
Lucia is right. Most people do not leave substantial assets. My parents, entering SS around 1942-43, received benefits many times (6?) their inflation adjusted lifetime contributions, and they left almost nothing… after a fairly long and relatively comfortable retirement. I will never receive benefits equal to my inflation adjusted contributions (unless I live to >90, which in my family has never happened). Like all Ponzi schemes, the people who get in early benefit… everyone else loses. But the biggest winner is the administrator of the scheme, whether that is Ponzi himself, Bernie Madoff, or the US Congress.
j ferguson,
I think DeWitt is fairly close… the monthly payout of a lifetime annuity starting at age 66, and purchased with an accumulated (over 35-40 years) lump sum equal to total SS contributions plus a conservative 3% annual return would be about 60% of the gross SS monthly payment. If you assume a 5% rate of return, then the lifetime annuity would be about 40% more generous than the gross SS benefit.
However, the situation is complicated by other factors… if you are still working (even part time) you will continue to pay SS taxes on your income, leaving a smaller net SS benefit, and if you have other taxable income (and most do) you pay your last dollar income tax rate on your SS benefit… further reducing the net. Depending on taxable income, you could easily end up with a net benefit from SS of only 50% of the “theoretical” benefit.
SteveF, DeWitt,
I’m astonished. I thought one of the pitches for privatizing SS, or allowing the establishment of personal retirement investment accounts was that they could produce better results than the SS system.
Somewhere, I think I have the printout of what we contributed over the years. It will be interesting to see how it worked out.
–
I think we did much better ourselves. I suspect, (don’t know if it’s apples to apples because some fairly obscene house sales were involved in our basis), that our contribution to our present net totals less than the SS contribution and pays out about double the annual SS rate and could go on for ever at the current draw-down.
It seems like a pretty good idea to keep the lump intact until the finale based on recent family experience with 24-7 caregivers – figure >>$18k/month
mother-in-law is coming up on 102, F.I.L was 95, my mom made it to 97 and Dad 95, great grandmother to 97, one set of grandparents late ’80s, other late ’60s.
I suppose this isn’t very encouraging for the folks who were hoping I’d go away. Maybe I should be insulted more often.
–
We do have to keep the expenses down to a dull roar.
–
When I thought it might be better in late 2003 (age 61) to retire than go to Baghdad, we asked our investment guy if we had enough to retire.
“Yes, you sure do.”
“living to what age?”
“85”
“Nuts”
It’s funny but when you figure out what you can spend, if you take it from 85 to 95 assuming you’re 61, it looks like you could go on for ever. There must be a mathematical basis for this.
I haven’t heard much about privatizing social security lately. Has any of you?
SteveF (Comment #157627)
January 21st, 2017 at 9:12 pm
“Max,
Lucia is right. Most people do not leave substantial assets.”
______
SteveF, I don’t know about that, but whatever they leave would be even less if not for SS. Worse, without SS they might have to ask reluctant or unwilling children for financial assistance.
I disagree with many of the opinions here on SS, particularly the notion it’s a Ponzi scheme. Websters defines Ponzi scheme as follows: “an investment swindle in which some early investors are paid off with money put up by later ones in order to encourage more and bigger risks.”
I don’t believe this definition can be applied to SS. I will refer to the language in the definition explain why.
In the context of Ponzi, a “scheme” is a dishonest plan to rob greedy suckers of their money. SS is a tax on earners not a scheme to defraud a nation of saps.
“Investments” are for profit, SS is for insurance, a narrow but important distinction.
A “swindle” is a deception used to deprive people of their money. SS is not deceptive, people are familiar with how it works.
SS doesn’t encourage “more and bigger risk.”
Although the definition doesn’t cover what eventually happens to a Ponzi scheme, it will in time collapse, leaving investors with nothing. SS does not have to collapse if funding is increased and payout becomes less generous. SS has been strained by a demographic development that it’s founders probably never envisoned, a baby boom followed by a birth dirth. The strain should ease as the boomers expire. Ponzi schemes don’t ease with time.
Lucia, I’m not sure I used the right wage index and consumer price index but I looked at three equal time frames during 1955-2015 period and the wage index rose much faster than the CPI in 1955-75 (161% compared to 101%,) slightly faster in 1975-95 (186% compared to 183%), and much faster again in 1995-2015 (95% compared to 56%).
The National Average Wage Index is from https://www.ssa.gov/oact/cola/AWI.html
The CPI Inflation Calculator is at https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=5.69&year1=1995&year2=2015
I probably used the wrong data for comparison, but if not, the CPI seems a better way to moderate annual adjustment to Social security than the wage index.
From Ron Graf (Comment #157603)
January 21st, 2017 at 3:32 pm
Ron I intended to reply to your comment but got distracted by the discussion on Social Security.
I’m concerned about rising sea levels from global warming and am glad to hear you are somewhat concerned.
I hope you are right about coal. I will be happy to see coal replaced by anything.
Max,
Insurance is a legally binding agreement between parties, enforceable via lawsuit if needed.
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Social Security is nothing like that; it is a Federal wealth transfer program (essentially a welfare program), with wealth taken from younger people and given to older people. All of the ‘means testing’ and taxing of SS benefits are designed to make benefits relatively more generous for less wealthy beneficiaries, and relatively less generous for more wealthy. That’s fine with me, it is the way welfare works. The problems are 1) SS ‘obligations’ (under current benefit rules) are unsustainable at current revenue rates, 2) the tax structure fails the smell test as a reasonable welfare program because past and even most current recipients are far richer than the people being taxed to support them, and 3) while the wealth transfer/welfare aspect makes SS more complicated than a simple Ponzi scheme, SS has many of the characteristics of a Ponzi scheme, the most important of which are the differences in outcomes depending when participants entered, the diversion of a large portion of the ‘investors’ money to the plan administrator…. in this case Congress, and most of all, the willful deception of investors by the plan administrator. The accumulation of trillions of dollars in non-negotiable bonds in the ‘Trust Fund’ allowed Congress to avoid making the politically difficult choices they would otherwise have faced: raising taxes, cutting spending, or issuing real debt, all of which tend to shorten the careers of Congress critters…. and presidents. SS isn’t called the political ‘third rail’ nor nothing. It is the utter irresponsibility of politicians and the continuing deception which I find most offensive.
Max_OK (Comment #157632) “I’m concerned about rising sea levels from global warming”
http://www.SeaLevel.info gives sea levels if you type in the town or tide gauge.
The mean sea level (MSL) trend at Stockholm, Sweden is -3.79 mm/year with a 95% confidence interval of ±0.30 mm/year, based on monthly mean sea level data from 1889/1 to 2015/12. That is equivalent to a change of -1.24 feet in 100 years.
I hope that blatant cherrypick, I mean well considered random guess helps ease your worry.
Max_OK
Yes. But I hope this isn’t intended as an argument in favor of generous SS payments. Because if it is, it has got to be the absolute worst argument ever. We don’t need a government to help people maintain or accumulate estates to transfer to lucky beneficiaries of their choice.
Sure. One of the positive argument for SS is to permit people who worked to maintain the dignity associated with having been a wage earner. That means not having the suffer the indignity of being forced to ask kids for ‘charity’. Also: you left out “non-existent” kids. Some elderly don’t have any.
Max_OK
I never said “moderating” was the goal.
The goal is fairness. Clearly, SSI understands that it makes sense to use the wage index to index earnings for getting SSI. In my view, it makes sense to use it for benefits afterwards too. Use of the wage index better dovetails the purpose: which is to allow someone to maintain the dignity commensurate with the wage levels they were earning when they could still work.
SteveF (Comment #157634)
Steve, that was a good summary of SS and the utter irresponsibility and deception that politicians use to support the system. The modern day liberal and other big government advocates do not want people responsible for their retirement savings but rather dependent on a government program. In the case of SS, like so many other government programs that the many voters depend on it or to be dependent on it in the future, make proposed changes to that program a voter “third rail” for politicians. The result is a program that has become unsustainable in current time and greatly more so in the future. Fixing it is not a matter of a few tweaks here and there as some liberals would, in order that the status quo can be maintained, like people to believe. In fact the changes to SS that have been proposed by Democrats is to increase benefits. That is part and parcel of the underlying tendency of people believing that the forced savings through SS, that the government promises to provide, will sustain them in retirement and that that government dependence on that facet of their lives has greatly diminished the motivation of people to save on their own. The not so unexpected result is that people attempt to retire on SS with little or no savings to back-up the SS income. The typical answer from big government advocates to a problem that big government created is that the benefits be increased, i.e. make the big government bigger.
As an economy as a whole that has to sustain government medical and retirement programs at all levels of government we cannot simply confine our discussion to a single program like SS. There are federal, state and local government programs that have huge unfunded liabilities due to the utter and total irresponsibility of the politicians running government in the present and past times and at all levels. “Fixing” these programs now or in the future will present a very dramatic drag on the economy and is the reason why no politician is motivated to talk about this dilemma. The Democrats want to make these discussions a “third rail” and unlike their AGW concerns for future generations are very willing to put this problem on those future generations. The Republicans who think they can “fix” the problem eventually are scared away by the voter “third rail”. None of this portends for a good ending.
angech,
That is not a very accurate web site. Yes, the longest term tide gauges do show lower average rate of rise than satellites. That is at least in part because the satellite record only extends to ~1992. .
If the site author wants to make a fair comparison, he should compare tide gauges from 1992 to present to the satellite record, not the linear tide gauge trends from 100+ years ago to the satellite trend. By the way, that comparison is exactly how the satellite data is calibrated…. a direct comparison with specific tide gauges, with local surface movement (eg glacial rebound) taken into account. Just averaging tide gauge trends from around the world is most certainly not a reasonable approach; at a minimum, the placement of tide gauges would have to be representative of the whole world, and they are not.
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The argument that the satellite measurements don’t mean anything is simply specious. There is some uncertainty in the satellite record, of course, but nothing like that web page suggests. The satellite estimate could be as much as ~10-12% off, but much more than that is a stretch.
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The web page falls in the category of “please stop helping so much”; a crackpot analysis takes attention away from very valid arguments against predictions of catastrophic sea level increases, such as the obvious lack of acceleration in rate of rise in the satellite data over the past 25 years, and the implausible rates of acceleration that would now be required to reach the “catastrophic” 1 to 2 meters rise by year 2100 so many (nutcake greens) have carried on about for decades. These rapid rates of sea level rise are so implausible that they must be an embarrassment to many people working in the field. The IPCC explicitly discounted the really crazy numbers from the likes of Stefan Rahmstorf and his many minions.
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Most ‘serious people’ appear to now concentrate on projecting only very large “very long term” (hundreds to several thousands of years!) sea level increases. Which are safely beyond disproof by actual data in the coming decades, yet maintain the virtue signaling required to remain in good (green) social standing…… and to get public research grants.
Max_OK: “I disagree with many of the opinions here on SS, particularly the notion it’s a Ponzi scheme.”
Thanks, Max, for taking the time to deconstruct the Ponzi scheme nonsense.
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The reason Social Security is underfunded is that it has both defined contributions and defined benefits. Any such scheme must always be either overfunded or underfunded, except for the instants in time when it transitions from one state to the other. Since politicians want taxes to be no higher than they absolutely must be, that pretty much guarantees that Social Security will be underfunded. That is not too big a problem as long as occasional course corrections are made. But the last correction is now a decade overdue, made worse by the partial contribution holiday under Obama.
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That is why I suggested indexing based on keeping the fund solvent (Comment #157590). That is somewhat similar to the defined contribution plans that private pension plans have been moving to. It asks the recipient to accept a small risk (less certain payouts) to avoid a large risk (bankruptcy of the entire plan).
Kenneth,
“None of this portends for a good ending.”
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Nope. Benefits will be cut, probably by increasing the age of eligibility, and taxes will be raised. I am more concerned that the ‘drunken party’ of zero net interest on Treasury bonds will end, followed by a budget crisis that will lead to a host of very bad policy decisions (see for example, 2009).
SteveF: “Social Security is nothing like that; it is a Federal wealth transfer program (essentially a welfare program), with wealth taken from younger people and given to older people.”
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No, it is not a welfare program. It is primarily a forced savings program, with some redistribution built in.
SteveF: ” I am more concerned that the ‘drunken party’ of zero net interest on Treasury bonds will end, followed by a budget crisis that will lead to a host of very bad policy decisions”
On that, we agree.
Mike M,
” Since politicians want taxes to be no higher than they absolutely must be, that pretty much guarantees that Social Security will be underfunded. ”
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I find this to be complete nonsense. There exists a fictitious multi-trillion dollar “trust fund” only because benefits were grossly over-funded via high payroll taxes for many years, while Congress just spent the money on lots of other stuff they wanted “for free”. Had Congress moved those excess trillions into real assets (stocks, bonds, real estate, etc.) SS would not be in the mess it is in now.
Mike M.
“No, it is not a welfare program. It is primarily a forced savings program, with some redistribution built in.”
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There is no savings. Like I wrote to DeWitt above, SS is not a subject where I have ever seen movement. If someone actually believes what the politicians say about SS and the “Trust Fund”, then nothing is ever going to change that, not even actual reductions in benefits. I won’t spend any more time today on this.
SteveF,
Of course that would have meant that the reported budget deficits would have been a whole lot higher. Even during the Clinton administration when the nominal budget deficit was very low, total government debt increased.
Mike M.
Congress, or at least Democratic members, in fact want taxes to be as high as they possibly can be, not only as high as they must be. Why else do we currently have one of the highest corporate income tax rates in the developed world. Before Kennedy, the maximum tax rate on individual income was greater than 90%. Only Republicans, and probably not all of them, want taxes to be only as high as absolutely necessary.
When it was pointed out to Obama that a high capital gains tax rate might actually bring in less revenue than a lower rate, he wouldn’t consider lowering the rate.
I wonder how many affected people even realize that the the so-called trust fund with non tradeable claims on federal funds will cause a significant and immediate cost on the annual federal budget when the in flow of money into the “trust” fund is less than the required out flows for benefits. That deficit has already occurred and will only increase over time and become a huge drag on the economy long before the so-called trust fund runs out of claim tickets that the federal government by current law has to cover. That is the ponzi scheme part of SS and is every bit as deceptive to the affected party as the fraudulent ones that get prosecuted.
The MSM has been disgracefully absent in reporting on these aspects of the SS system and explaining the true workings of the so-called trust fund. It makes their big government biases very evident.
Mike M.
I’m wasting bandwidth here as I’m sure your position is set in stone. Nonetheless: Social Security is 100% redistributive. It transfers income from young to old and from more well off to less well off. There are no savings, at least not in any sense that matters.
Try to imagine a private company selling inflation adjusted annuities with the same plan as Social Security. It couldn’t exist, or not for long, because it would indeed be a Ponzi scam even if the excess money were invested in real assets. The people who got in early would collect far more than the later clients, who would get ever worse returns over time assuming the same changes in demographics.
j ferguson,
The people who claim that individual investing would produce higher returns than Social Security are trying to sell you their services. It would only be true if you could achieve unrealistically high real returns on your investment. Only a small fraction of investors actually achieve those returns over the long term. I suggest reading the Michael Lewitt quote I posted here:
http://rankexploits.com/musings/2016/fidel-and-the-judge/#comment-157257
Look at state government employee pension plans. Many of them were funded based on achieving a real rate of return of 8%. They’re not even getting close to 6% and so many are underfunded and some, like Illinois, have substantial unfunded liability. The longer they dither, the harder it gets to solve the problem. That’s why private companies have switched to defined contribution plans rather than defined benefit. Current economic conditions, particularly the zero interest rate policy, have made it impossible to achieve returns high enough.
If this goes on long enough, expect life insurance companies to start going under. By the way, if you want true forced savings where there are contractual obligations involved, buy whole life insurance from a mutual insurance company. That’s looked down upon by the financial services industry too.
Lucia, I picked Jan 2020 as an example. You can use any year you want, including 2000.
For an individual retiring in 2020, the 2020 check is wage indexed, and later checks are COLA. For an individual retiring in 2000, the 2000 checks are wage indexed, and later ones are COLA. By induction, all checks will have a wage index factor, since each check is calculated from COLA and previous year’s checks.
Alternative facts. Yes, they really said that.
Alternative facts. Yes, they really said that.
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Well, I’m not an apologist for this or any administration and think that all politics is groundling entertainment for the easily distracted.
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But I think this phrase is actually quite apt.
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It’s not that there are alternate truths to a given aspect.
It’s that there are alternate aspects each with their own absolute truth.
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Global warming is a good case.
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It’s a fact that measures of global mean temperature are rising.
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Unconsidered alternate facts include the lack of correlation with multiple presumed harms ( no increase in drought, tropical cyclone energy, strong tornadoes, hot days ).
The irony of Bugs being condescending about “alternative facts” is marvelous.
DeWitt Payne (Comment #157652) Well run state and private pensions, based on sound actuary assumptions and prudent investments do far better than Social Security. Cherry picking the failed ones as you do only underscores that point.
hunter: “Well run state and private pensions, based on sound actuary assumptions and prudent investments do far better than Social Security.”
I suspect that is only true if you ignore crashes like 2008. A lot of people had their retirement funds trashed by that event, but their Social Security was unaffected.
Mike M.
The historical return on the S&P 500 basket (after accounting for inflation) since 1977 has been ~4% per year. Were someone to invest the money that goes to SS continuously over 40 years at that rate of return, a lifetime annuity purchased with the accumulated assets would yield a bit over the current corresponding SS monthly benefit. Whether a 4% ROI is realistic for the future is a different question, but 4% is about right for the past 40 years.
No, well run pensions did not run into long-term problems due to the 2008 crash. Wgst kills pensions is when political players impose either unsustainable rates of return demands, or corporate raiders
There seems to be controversy about the rate of return (ROR?) on SS contributions on the web. Return seems to vary by where you were between minimum and maximum contribution, were married or single, spouse worked, etc. It appears that if you spent many years at max contribution, you didn’t do as well.
I agree with SteveF that expecting a longer term ROR on investments of 4% is realistic. I think it’s CalPers that expected an 8% ROR on their investments in order to meet their pension obligations. Now there is even a La La Land movie.
Basing a comparison on using the accumulated funds to buy an annuity at 67 seems reasonable, but isn’t there some slippage there due to the issuer hoping to make money on it? Our thought was to leave everything invested under management by someone competent (not me nor Bernie M) and draw 2% annually. This looks, so far, that there will be more than enough for the care-givers at the end whenever it arrives, even at 95.
BTW i know two Madoff investors. I didn’t have much sympathy for either of their ultimate plights. Each received twice the amount of their principal before Madoff was caught and were quite indignant that they lost most of their principal. Of Course they’d been spending the proceeds so for a while it looked like bankruptcy for each of them. It never quite happened, but they did have to tighten their belts a lot.
I doubt that this is watertight protection against schemers, but if the return is a lot better than everyone else seems to be getting, maybe there is something wrong.
j ferguson “Return seems to vary by where you were between minimum and maximum contribution …”
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That is certainly true since there is a redistributive aspect to Social Security.
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SteveF: “Were someone to invest the money that goes to SS continuously over 40 years at that rate of return, a lifetime annuity purchased with the accumulated assets would yield a bit over the current corresponding SS monthly benefit.”
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If that is for the max contribution, then Social Security does better than I thought. Not only do the max contribution people help pay for those less well off, but a portion of Social Security provides disability insurance.
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hunter: “well run pensions did not run into long-term problems due to the 2008 crash”.
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That is little consolation to someone who was planning on retiring in 2009. Relatively high-risk high-return investments do better than low risk investments if you luck out, and worse if your luck is bad. Social Security is extremely low risk.
SS is an endless topic. One aspect of it that is a good candidate for deeply unfair is that in a married family where spouse a works in a sector that pays into SS, but spouse b stays at home SS will endow the non working spouse b with SS benefits, no matter the income or neteirth of spouse b. Yet if spouse b works for one of the many sectors which doesn’t pay into SS then spouse b can get nothing from spouse a’s SS except as an offset to any SS benefit. Also SS still only pays a death burial benefit based on burial costs of the 1940’s.
SteveF,
The lifetime annuity would have to include a spousal benefit, survivor benefit and be inflation adjusted. That costs a lot more, or pays a lot less for the same price, than a simple annuity.
In 2012, an inflation adjusted annuity with the same payout as Social Security would have cost a 65 year old man between $325,000 and $350,000. That didn’t’ include survivor or disability benefits.
I totaled up my SS contributions less the amount that went into the disability insurance trust fund. Half of the contributions came in my last ten working years because of tax rate increases and increases in the wage cap. I would have needed a 5.5% annual return to have enough money to buy an inflation adjusted annuity for just me, and a lot more than that for survivor and spousal benefits. That’s approximately twice the value of my contributions. I’ve already received more in benefits than my total contributions.
An estimate of the lump sum value of the maximum social security benefit in 2015 was $572,000 for men and $683,000 for women. To get to $500,000, I would have needed an 8% ROI.
In the lump sum article they also calculate the effect of waiting until age 70 to start collecting benefits. For average benefits, the increase in the lump sum (net present value) isn’t very much, 11% for males and 8% for females. And that’s only true because interest rates are low now. At higher interest rates, there is no change.
The private investment of SS funds versus SS input and output has to be viewed with all the details that would affect given individuals. First of all it is important to account for the employee and employer contributions and assume that the employer contribution comes out of what could have been added to the employee’s salary/wages. Secondly there are benefits that SS pays that are not normally associated with an investment plan, i.e. disability. Thirdly it would have to be known what was the total income that was taxed during the contribution period. Fourth there are also individual risk aversion and reward preferences that should be considered in a private investment. A fifth consideration would be the variations in group life expectancy for an individual since SS stops for the individual when that individual dies. I would think that when all is said and done a private investment of the employee and employer contributions would have to produce a better retirement income and one that would much better fit the individual preferences and needs than the SS program which in effect is one size fits all is are many other government programs. Further SS takes in money and shells it out for other government programs that are almost all in the form of consumption.
Now most often the talk of private investment of SS retains the forced contributions by employer and employee and that part of the program is what makes more people continue to be dependent on government and to take an action that the individual is very capable of doing on its own. It is also what has already corrupted the intent of the program into other areas such wealth redistribution and disability insurance.
https://www.cato.org/publications/policy-analysis/still-better-deal-private-investment-vs-social-security
If you look at average savings for retirement of our population by age bracket, it is pretty clear many people are planning on living off SS.
The people who saved the least will typically also get the least back from SS due to its wage adjustment. Because retirement savings require “advanced math” by today’s education standards, most people have no clue where they sit with their goals, assuming they have any goals at all.
In summary, I think most people can’t be trusted to save for their own retirement. What to do? Mandatory savings might be a good idea.
After paying into SS for decades, any time I hear the phrase “means testing” I want to scream.
Dewitt,
401K’s have an inherent problem with running out before you die if you are unlucky enough to live a long life, ha ha. Annuities can help that but they seem like a minefield of exploitation from what I can tell, worse than mortgages.
Not taking SS benefits until 70 can help alleviate 401K running out fears as far as I can tell. It allows higher payments if you outlive your 401K so it can be used as a hedge for a longer than expected life.
So you have 401K’s, annuities, taking SS early or late, life expectancy, inflation, estimated investment returns, reverse mortgages, and spouse issues. Friggin mess of vagueness and risk. Nothing to worry about!
Tom Scharf (Comment #157690)
January 23rd, 2017 at 12:18 pm
I do not agree and in contradiction am claiming that it is the forced “savings” part of SS that leads people to ignore saving on their own. A further consequence of this situation is that eventually the shortfall between ease of retirement living being even close to that experienced pre-retirement becomes evident to the retirees as a voting group and the politicians. That will result in the clamor – as is currently the case for Democrats in congress – to increase benefits. This creates a serious snowballing feedback that would probably be irresponsibly foisted onto future generations.
If politicians and government were truly concerned about people saving (and thus being more independent of government) they would at least be very serious about educating the public about this issue.
DeWitt,
Thanks much for your detailed analysis.
As Kenneth points out, if you were to assume (naively, I think) that were employers not also required to contribute, they would instead increase salaries by that amount, then the total contribution from both employee and employer might make SS look less attractive.
DeWitt Payne (Comment #157687)
January 23rd, 2017 at 11:27 am
I am in the process of doing the same calculations with my SS contributions and payouts, but if I use your calculations and results than because we do not believe in free lunches and magical money you are indicating that even for past high earners SS has a significant welfare benefit and somebody has to be paying for it and that somebody has to be future generations.
Referring back to the original post, this blog post is interesting. Sounds to me that climate policy documents are being conflated with “data” in some minds.
To be clear, I have no objection to these archiving efforts. These folks want to do it, and on their own dime — fine. I just find the expressed fear, well, over the top.
Kenneth,
I think we pretty much agree. It is curious students must spend so much time investigating classic literature and poetry, but yet almost zero time on budgeting, mortgages, car loans, and retirement.
Possibly forcing a simple retirement plan to be submitted with your tax return would be useful, at a minimum it could alert the person to large disparities.
A lot of people will be living below their expectations in retirement, which is of course way better than being homeless.
SS is politically untouchable, but that doesn’t magically absolve it from math. Increasing benefits would be fiscally irresponsible, but based on the behavior with many public sector pensions that doesn’t seem to matter much. Ponzi schemes fail when growth stops. Young people pay more, or old people accept less.
HaroldW (Comment #157697)
January 23rd, 2017 at 2:45 pm
There is some irony there in the fear expressed here in that probably those same people who were willing to entrust AGW mitigation to the government feel that the government records should be in private hands.
Tom Scharf (Comment #157698)
January 23rd, 2017 at 2:56 pm
The other option not mentioned here is that those who want to maintain their standard of living and have not saved sufficiently to retire is to not retire. The new 70’s are now the old 50’s. People are more resourceful than most and particularly patronizing politicians think they are. Perhaps the solution will be to let these government pensions plans to fall from their own weight. Doing something being the political 3rd rail means that the programs may well get so far underwater that that will be the only option. Before SS people did not plan to retire.
MikeM
If you point is to get out the specific details of SSN, that’s fine. We all agreed COLA is sometimes used.
My view is that any and all use of COLA should be changed the wage indexing. COLA is the wrong way to deal with what is, fundamentally, a program to replace wages one would earn but no longer can earn due to aging. Additional clarifying details about the nitty grity of exactly how SSN deploys their increases is not going to change my view that any and all adjustments should based on wage rates not inflation.
HaroldW,
It is amusing to see how evil they believe their opponents are. I can think of zero instances of people calling to delete climate data, but I can think of plenty of calls to produce climate data that were rejected and criticisms for them deleting or losing climate data themselves. ClimateGate may be a million internet years ago, but it stands in stark contrast to these fears. One would think they would mention that these fears are totally unsubstantiated.
DeWitt, I have done some quick calculations and I am in essential agreement with the amounts you obtain using the rate of returns you used. I went back and looked at my investment returns on the money I invested from stock options and profit sharing. Those moneys were invested fairly conservatively in a mixture of stocks, bonds and other interest bearing paper and mostly in mutual funds. The average annual returns were near the average of 10 % for a portfolio of 2/3 stocks and 1/3 10 year government bonds for that time period. I think any other investor could have used this same strategy with little effort on their part. I did change the ratios of stocks and bonds a couple of times and obtained some capital gains (being lucky on my part) that I did not include in the return calculation.
Looking historically at the relative SS contributions over time leads me to believe that my kids making the maximum contribution like I did are going to be royally screwed because of what you noted about the accelerated payments into SS over the past couple of decades. I should make the calculations though before I go too far with this prediction. It is that generation that is making our generation’s payout very generous compared to what we paid into it. I do not feel so bad with that in mind when the wife pressures me to (over) gift our kids and grandkids.
Tom,
To me, the belief that opponents are evil is logically tied to the belief that climate skeptics (including Trump & Co.) are “anti-science”. If someone at NOAA decides to revert to the pre-Karl method, it *must* be due to ideology.
And do you recall their frantic efforts to preserve earlier versions of the US (or was it global?) average temperature history — the ones which had the 1930s peak as warmer than the 1990s peak — before each GISS update? No, I don’t either.
Kenneth,
That Cato paper isn’t worth the bandwidth to download it. It completely ignores the disability insurance, inflation adjustment and survivor benefit features of Social Security benefits. I question their financial worth calculations too. Figure 4, for example, compares apples to oranges. The value of the retirement account should be compared to the net present value of the Social Security income stream, not some sort of ROI calculation. It’s also assumed, incorrectly IMO, that investments would be free from taxes and fees. Not to mention that nobody in their right mind is going to put all their retirement savings into the S&P500.
I’m positive that if you did the calculation correctly, low income earners would be far better off with SS than investing. For one thing, SS income is never taxed at 100% like investment income would be. For low income earners up to $25,000 provisional income for a single filer and $32,000 for a joint return, it’s free of federal and probably state income tax. Over that 50 to 85% is added to your income.
For high income earners, tax law would have to have been changed. Contributions to tax free retirement savings plans were and are limited by law.
Disability Insurance has been part of Social Security since 1957.
Mike M. (Comment #157642)
January 22nd, 2017 at 9:38 am
“Thanks, Max, for taking the time to deconstruct the Ponzi scheme nonsense.”
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MikeM, you are welcome. Another misconception is the SS T- bills unlike regular T-bills can’t be sold before maturity. While they are non-negotiable (can’t be resold in the bond market), unlike regular T-bills they can be sold back (redeemed) at par anytime, and thus cannot lose face value. Regular Treasury bonds lose value when interest rates are rising and gain value when interest rates are falling.
Tom Scharf,
I wouldn’t touch an annuity with a ten foot pole. Low current interest rates and increasing life spans are likely to bankrupt a lot of them. I took my pension as a lump sum when I was 60 and rolled it over into an IRA. I started collecting SS at 62 for capital preservation. The arguments for waiting longer were unconvincing. I only started withdrawing money when I had to start Required Minimum Distribution. My investments haven’t done as well as Kenneth’s, but I’m still OK.
Max_OK,
As Mike M. said above, that’s a distinction without a difference. The current deficit between SS taxes and SS benefits is still being paid from general revenue, i.e. taxes and borrowing, just like it would be if the trust fund didn’t exist. The trust fund is still just an accounting fiction that allows payment of benefits from general revenues without needing new permission from Congress.
The Disability Insurance trust fund is, to all intents and purposes, gone. But disability benefits are still being paid by temporarily increasing the amount of the OASDI tax that goes into the Disability Insurance fund and general revenues.
DeWitt Payne (Comment #157709)
January 23rd, 2017 at 5:00 pm
DeWitt, to be fair income for a private replacement for Social Security should be taxed at the same rate as Social Security. Unless, of course, the government intent is to maintain a program to keep people dependent on government and wants to make private investment less so. In IL the state does not tax either Social Security or IRA payments. They are thinking about it and certainly would if they did not think it would send all those people to Florida and parts South. As an aside Il is already losing population and could well be on the way to being a Detroit if the politicians continue their games. Payments into IRA accounts are not taxable until withdrawn which is somewhat in line with SS. And, of course they are a lot of SS recipients like me who pay taxes on 85% of that income and at an incremental rate.
You did not address the point that I made about a reasonable return on private investment for the period I was contributing to SS. That is the only period of time we have to make a comparison at least for our generation. I agree that one has to make one’s own calculations to determine exactly how to compare SS to private investment, but even this leaves out the issues of people becoming dependent on the government and allowing the system to be deceptively if not fraudulently presented and preventing people from making their own decisions on investing and retiring for that matter.
If SS is a great deal for low income earners than we should take SS for a welfare program and means test everyone else out of it. Means testing is counter intuitively an anathema for liberals because they fear SS will lose its partly false savings context and as people are tested out of the system it will lose its voter appeal and third rail inhibitions to change it.
Here is a link to the average historical returns on stocks and government bonds.
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
DeWitt Payne (Comment #157712)
January 23rd, 2017 at 5:53 pm
The fact that otherwise apparently intelligent people do not understand this simple explanation indicates a willful deception on the part of politicians and I think a lot of media people — although those media people might be that ignorant.
Kenneth,
Generally, when choosing between ignorant and intentionally deceptive as an explanation for a certain behavior, I’ll go with ignorant. Unless you’re a business or finance major, it’s unlikely that you’ll ever be exposed to financial concepts like net present value or cash flow rate of return. That’s true even though a lot of people have mortgages.
Kenneth,
Not being overly dependent on government was a major reason why I started collecting Social Security at 62. The projections of annual payments if I waited until age 70 looked so high that I didn’t believe that I would actually see them. Not to mention the significant possibility that I wouldn’t live long enough to break even.
DeWitt,
It’s funny. we also took SS at 62 on the premise that waiting required capital and that we were (at the time) doing better with ours than SS, or so we believed. Anent one of your earlier comments, our financial manager thought of this. I just now realized that his outfit gets compensated based on money under management and of course delaying SS onset would reduce this amount and hence his compensation. No-one could be that crass, surely.
Based on family experience, I thought it reasonable to expect to live until 95 maybe longer, and assuming that SS didn’t belly-up, they would be sending out a lot of checks. I really should have done the comparison to see if we were actually getting good advice.
Living in Palm Beach county with a lot of other retirees, it appears that more than a few pretty bright guys pitch in at HomeDepot. Every once in a while I’ll ask one what they did in civilian life and then how did they come to spend their days straightening shelves at HD. The most often response is ” … couldn’t think of anything to do, and this is actually kind of fun.”
I wonder if income improvement is more likely the real answer.
I doubt if anyone who reads here will have any problem thinking of something to do.
I guess it is kind of a blessing not only having two sticks to rub together but being backed up the rest of my life with a couple of long term development (not real estate) projects.
DeWitt Payne (Comment #157712)
January 23rd, 2017 at 5:53 pm
“Max_OK,
While they are non-negotiable (can’t be resold in the bond market), unlike regular T-bills they can be sold back (redeemed) at par anytime, and thus cannot lose face value.”
As Mike M. said above, that’s a distinction without a difference.
_____
I’m not sure that’s what MikeM meant if in reference to the difference between a special SS T-bond that can be redeemed at face value anytime and a regular public T-bond that can’t. To me there is an obvious distinction because it can and frequently does mean a significant difference in what the bonds are worth between the issue and maturity dates.
j ferguson said
It’s funny. we also took SS at 62 on the premise that waiting required capital and that we were (at the time) doing better with ours than SS, or so we believed. Anent one of your earlier comments, our financial manager thought of this. I just now realized that his outfit gets compensated based on money under management and of course delaying SS onset would reduce this amount and hence his compensation. No-one could be that crass, surely.)
ught of this. I just now realized that his outfit gets compensated based on money under management and of course delaying SS onset would reduce this amount and hence his compensation. No-one could be that crass, surely.
j ferguson, I’m sorry for previous premature post. I tried to edit it, but wasn’t fast enough.
I can imagine a scenario where your financial managers advise would have paid off, but it would be a long-shot.
I say delay filing for SS until you can draw the maximum amount if you can afford the delay and aren’t terminally ill. Live off savings, but, if possible, don’t tap your tax-deferred accounts until required to draw a minimum out. If savings aren’t enough, tap Roth before withdrawing tax-deferred funds.
Projecting how much longer you will live is essential to financial planning, but not pleasant to think about. So I don’t.
The especially funny part of the above:
We discussed this in 2001 and I just picked up on this earlier this evening. 16 years is a little slow to get it.
Perhaps the financial advisor thought his client looked poorly and should start drawing Social Security ASAP.
Max_OK. Without actually doing a comparison, which I never did, I can’t be sure that what we did wasn’t better. As it was, because we sold our south beach place, moved onto our boat and lived on it for ten years we were actually able to live mostly on SS and some dividends. During that time our investments did quite well. We took a 15% hit in 2008,9 mostly because our mix leaned toward bonds. And since then, we’ve recovered well.
I suppose part of the trick is being a cheap date.
In Australia we have indexed increasing pensions in some industries, Teachers, Government Engineers etc. If you die early your widow gets the pension but it ends when both dies.
I have lost count of the number of smart friends who have converted them to self superannuation schemes under professional advice and then have lost money hand over fist. My Father in law as a bank manager took the indexed pension and stayed with it until he died. A much smarter move.
angech, is what you describe what we call cashing out; taking a lump sum payment?
Yes, Could either have the indexed pension at a good rate accumulating with inflation and indexed to final salary or take a lump sum and seek “expert financial advice” to reinvest.
Best advice would be to leave it in.
angech,
If my pension from work had been indexed, I probably would have kept it rather than taking a lump sum. But it wasn’t, so I didn’t. I haven’t lost money because I didn’t seek “expert financial advice”.
Max_OK and Mike M.,
Suppose the SS Trust Fund had bought gold or a basket of commodities on the open market instead of being issued special Treasury Securities. Ignoring the fluctuating value, what’s the difference? For one, there really would be a ‘lock box’. For another, the federal debt would not have increased and the government would not have had that money to spend. But it didn’t and the government did spend the money. Do you still think this is a distinction without a difference (real question)?
If I had a pension that was tied to an entity that could go bankrupt, I would take a lump sum payment in a nanosecond. I suppose the protections in place vary. My Dad had a pension from Union Carbide which did disappear in part due to that “incident” in India, but still pulls his pension OK.
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There is no optimal financial retirement plan unless one sets their assumptions in place first, which seems to me to be guessing on a big roll of the dice.
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I personally don’t see much value in a financial adviser when one can pick up the basics by self study fairly quickly. I spent two hours at a book store in 1985 and read unmanaged (indexed) funds outperform managed funds 80% of the time, chasing performance was a bad strategy, and equity was likely better for long term investing.
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I get it that some people find this money game fun and do it for a hobby, I just find financial planning to be a burden and not very fascinating. I believe the large majority of people who are very successful investing are likely more lucky than skilled, and I certainly can’t tell the difference.
Tom Scharf,
Where I worked, if you didn’t take a lump sum, the company transferred the pension funds to another organization. It was something like a bank or an insurance company. So you weren’t tied to the company that had employed you, but there was still some small risk that the financial company could go bust. I suspect Union Carbide did something similar when your father retired.
I still get annual transfers to my Medicare Advantage plan from my former employer. Those could possibly go away.
you guys must have a lot better discipline than I do. I fall in love with the companies I buy stock in and then don’t sell when I should. so, in my case, the manager consistently does better than I would.
j ferguson (Comment #157731)
January 24th, 2017 at 4:55 am
“Max_OK. Without actually doing a comparison, which I never did, I can’t be sure that what we did wasn’t better.”
______
I don’t know what you gave up in future SS payments by drawing early, but I believe today by delaying payments until after age 66 a person gets 8% more for each year he waits to draw. An after tax return of 8% a year is hard to beat. But there’s no guarantee an individual will live long enough to draw more in sum total than he would have by not delaying.
Anyway, personally, I doubt it’s good to think much about what could have been. When I do it, I dwell on the bad choices I have made rather than the good choices.
DeWitt: ” For one, there really would be a ‘lock box’.”
I don’t have a clue what you mean.
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DeWitt: “For another, the federal debt would not have increased and the government would not have had that money to spend. ”
I don’t see why not. They would have just borrowed the money elsewhere, like they did with the other 80% of the debt.
The Social Security Administration has a handy table for retirement benefits here.
Max_OK, while you’re correct that by delaying payments a person gets 8% more for each year of deferral, I wouldn’t call that an “after-tax return of 8%”. [Which indeed would be hard to beat.] I would instead compare it to the value of a COLA-indexed annuity. That said, I googled for annuity prices, and the first hit I got gave me a quote which was in the region of 7% annual return compared to principal invested (at age 66), so it may well be a better deal to defer.
I recently had a financial consultation, and my advisor who had previously advised deferring to age 70 (the maximum), now mentioned age 68. I didn’t discuss that further with her — I still have a few years to that crossroad. I am fortunate in that I don’t need the income immediately upon retirement; can afford to wait a little. For me, the “worst case” financially is a long life [obviously that’s “best case” from a personal point of view], and increasing benefits by deferring alleviates that somewhat. If I die early, SocSec deferral will have turned out to be a sub-optimal choice, of course, but that won’t be my worst regret.
DeWitt Payne (Comment #157738)
January 24th, 2017 at 9:53 am
Max_OK and Mike M.,
“Suppose the SS Trust Fund had bought gold or a basket of commodities on the open market instead of being issued special Treasury Securities. Ignoring the fluctuating value, what’s the difference? For one, there really would be a ‘lock box’. For another, the federal debt would not have increased and the government would not have had that money to spend. But it didn’t and the government did spend the money. Do you still think this is a distinction without a difference (real question)?”
________
Dewitt, I can’t speak for MikeN, but here’s my thinking.
I suspect it would have been better for the SS trust fund alone if it had bought gold or a basket of commodities instead of the special Treasury securities, but better elsewhere if the fund bought the securities.
If the Federal government had not borrowed from the SS trust fund it would have borrowed more from the public, and the added demand for money would have pushed interest rates up and made debt more costly for businesses and consumers as well as governments at all levels.
i believe the investment of the SS trust fund in Treasury securities benefits society by having a moderating influence on interest rates and making more money available for non-government borrowing.
I would, however, consider a balanced SS trust fund portfolio, consisting of the special Treasury securities and broad stock and bond indexes.
Harold W, thanks for the link.
You said “I wouldn’t call that an “after-tax return of 8%â€. [Which indeed would be hard to beat.] I would instead compare it to the value of a COLA-indexed annuity.”
Good point, Harold W.
You said “If I die early, SocSec deferral will have turned out to be a sub-optimal choice, of course, but that won’t be my worst regret.”
Excellent point !
My advice is to use your own preferences in investing but know the consequences. If you need an advisor use one that gives advice only and does not benefit from the advice in selling investment products. Even better take a simple course in investing. Use indexes for investing. Individual stock picking is for someone who can spend full time at it and even those people often fail to beat the indexes. Do not buy or sell in a panic as you can lose a big chunk of your investments by getting out at the bottom. The key is to avoid situations where you need to sell large amounts of funds in order to pay for items in the present. If you have a reserve in something close to cash you can avoid most of these situations. Buying stocks or bonds when the prices are down is always smarter than a panic sell. Remember that nothing is permanently lost until you sell. If you can hold the fund that is trending down and even buy more of it you will almost always be better off – given that you have long term investment strategy.
Actually investing is not all that a complicated matter. The problem I see with people and investing is that their time preferences are pretty much in the present and the future is for someone else to worry about and even come to their rescue. If that rescuer were not there and even thought to not be there I think you would see a lot more savers. Unfortunately the current intelligentsia and the prevailing Keynesian economic views hold that consumption is good and savings can be bad. The economy that keeps increasing the standard of living is built on savings and investment and with consumption following on that investment.
HaroldW (Comment #157749)
January 24th, 2017 at 11:44 am
It would take a rather complete model to determine what is best for each individual for the optimum time to start taking SS. You have to know their income and where that income was coming for tax purposes and what life expectancy group they belong.
Does your financial adviser reveal how she determines what’s the best time to take SS – or did she perhaps take a harder look at you and think yeah maybe 68 would be better.
I have a major problem with those people who give out investing advise to the general public and without warning that optimum investments must be on an individual basis. Suze Orman comes to mind.
During the Al Gore and George Bush presidential campaigns and debates, Al Gore wanted to or wanted to appear to want to do as DeWitt has noted and that was to start putting real funds into the SS Trust and not Government IOUs on itself. He repeatedly referred to a lockbox for these funds, i.e. the government could not appropriate the funds for other purposes by writing those IOUs that currently reside in the trust fund. Nothing ever came of it as it was no doubt in-the-moment campaign rhetoric that we see from all candidates.
Kenneth Fritsch (Comment #157756) –
My adviser presented a rather detailed view of monetary flows (income including pension, required minimum distribution from IRAs, investment income; expenses including basics, mortgage, travel, wintering in a warm place, etc.). Certainly more complete than I had ever considered on my own.
Plus, I’ve told her that my family history suggests outliving the break-even point for SocSec.
Thinking about it some more, I suspect that the revised age of 68 might have had to do with an account which will be distributed over the 5 years following retirement. When that is exhausted, it might make sense to begin the SocSec income stream.
<I wonder how many affected people even realize that the the so-called trust fund with non tradeable claims on federal funds will cause a significant and immediate cost on the annual federal budget when the in flow of money into the “trust†fund is less than the required out flows for benefits.
Kenneth, nothing changed when the annual SS surplus became a deficit. The government had less money to work with than the year before and had to make up the difference elsewhere. The problem started as soon as the surplus started shrinking, which I think was 2007.
The point of the lockbox was to fit the theme of portraying W as risky, with his risky tax scheme that threatens the current prosperity. Drunk driving arrest was perfect finish.
Another way to look at the ‘when to start SS’ question would be to assume that if you start at 62, you may not need to draw down capital to get by. You’ve gotta be pretty frugal. And when you get to 67 or 70, not only will your capital be intact but will have grown due to your wise investing (well someone’s wise investing).
On the other hand, you wait and spend capital getting by. When you get to 70, your net worth will be diminished not only by what you spent on food and the like but by the return on that part of it which you didn’t get. And how are you going to rebuild this amount?
I concede that there may be circular reasoning in here.
j ferguson,
I would like to see the calculations based on net present value rather than cash flow. For example, I’ve seen numbers saying that waiting until 70 instead of 66 only increases the net present value of the SS income stream for average life expectancy by about 10%, a little more for men and less for women. That’s less than 3% annual ROI and that doesn’t include the loss in capital or foregone earnings that are needed to finance the waiting period.
The increase in benefit payments from age 66 to 70 is the same 8%/year, or 32% total, as for age 62 to 66. so I would think that the increase in net present value was also about the same. So as near as I can tell, it only pays to delay collecting benefits if you’re certain you’re going to live longer than the average life expectancy at age 62 and you’re convinced that Congress won’t decrease the COLA or start means testing benefit payments.
Kenneth,
Remember at the time of the Bush-Gore debates, the budget deficit was small. Gore’s plan was to use the social security surplus to pay down the national debt rather than buying new T-Bills for the trust fund or buying real assets. Given his plan, his lock box statement made zero sense, par for the course with Gore. Also, the cash flow deficit was small at the time because the SS surplus was already being spent. But the national debt was still growing because the Treasury was still putting newly issued government securities in the trust fund.
MikeN (Comment #157759)
January 24th, 2017 at 3:32 pm
That, nothing has changed is, of course, what the politicians in Washington want us all to believe and there are a lot of people out that do believe that. When the cash flow into SS is greater than the cash flow out it alleviates the pressures on borrowing and deficit spending and on the other hand as is currently the case when the cash flow in is less (and by no small amount) than the cash flow out it increases deficits. If one feels that our accelerating national debt is not a problem nor will be one in the future than who am I to make those people worry about a sustainable system.
Bush tried to do something about this problem and even if you believed it would not improve the system at least he attempted to do something. The lock box of Al Gore is what deceptive politicians do best and that is posture about a problem without doing anything about it. Bush’s approach was too much in the direction of making people less dependent on government and that was never going to work in a system where politicians careers depend on dependency.
Oh, and another bit about SS that I doubt many out there appreciate and that is the fact that SS pays interest on those IOUs in the trust fund and puts those bookkeeping entries back into the fund. Meanwhile for those who are truly interested in keeping track of the sustainability of SS and the drag it can have on the economy, they will be tracking the cash flow deficits – even if it does not keep them with a happy face on. Actually the surplus in the SS Trust fund (using the governments bookkeeping) could increase all the while the cask flow is negative.
http://www.pewresearch.org/fact-tank/2015/08/18/5-facts-about-social-security/
blockquote>But since 2010, Social Security’s cash expenses have exceeded its cash receipts. Negative cash flow last year was about $74 billion, according to the latest trustees’ report, and this year the gap is projected to be around $84 billion. While the credited interest on all those Treasuries is still more than enough to cover the shortfall, that will only be true until 2020. After that, Social Security will begin redeeming its hoard of Treasuries for cash to continue paying benefits – as was the plan all along.
> When the cash flow into SS is greater than the cash flow out it alleviates the pressures on borrowing and deficit spending
Not if the previous year you spent a larger SS surplus to alleviate the pressures on borrowing and deficit spending.
DeWitt Payne (Comment #157736)
” I haven’t lost money because I didn’t seek “expert financial adviceâ€.
I took the double negatives out but lost the meaning, I hope.
” I have lost money because I did seek “expert financial adviceâ€.
I hope you meant “I haven’t lost money by doing this”
Trump and his administration are starting to publish their administration goals .
Those pesky oil lines will be up and running soon.
Trudeau seems happy.
I would like to complain about Trump withdrawing the U.S. from the Asia-Pacific trade pact. He says being in the pact would cause a loss of American jobs, but he can’t be sure it would be a net loss, and even a net loss would have to be weighed against the consumer benefit of lower prices to determine whether withdrawing will be good for the American economy as a whole. I don’t think it will be, but I have a free-trade bias.
In addition to being good for the economy, free-trade has geopolitical benefits. Trading partners have mutual interests which
make them more committed to resolving their differences peacefully and avoiding armed conflicts.
I agree with comments by John McCain and Ash Carter, quoted in the Australia’s Sydney Morning Herald online edition:
“Senator John McCain, an Arizona Republican who chairs the Armed Services Committee, ripped Trump’s decision. Obama’s last defense secretary, Ash Carter, once said that the Asia-Pacific trade pact would be more strategically valuable than another aircraft carrier battle group in the Pacific.â€
US withdrawal from the pact “will create an opening for China to rewrite the economic rules of the road at the expense of American workers,” McCain said. “And it will send a troubling signal of American disengagement in the Asia-Pacific region at a time we can least afford it.”
http://www.smh.com.au/world/china-eyes-opportunity-as-us-pulls-out-of-transpacific-partnership-20170123-gtxbi1.html
Is there anything wrong with the current trade situation that required a TPP?
The TPP, like so much else Mr. Obama did, was poorly written, not capable of achieving its stated goals, deceptive, and filled with secret “surprises” that would show up later.
Think of Obamacare, think of the Iranian debacle, think of Syria, think of Iraq deal, etc.
Withdrawing the TPP and seeking a better deal for America only makes sense.
Max_OK (Comment #157806)
January 25th, 2017 at 12:57 am
Free trade actually means that governments do not get involved in the trading, i.e. the trade is between private parties and without governments making rules or levying import/export tariffs. Trade agreements get the governments very much involved and agreements are between a couple or a group of nations to the exclusion of other parties. Brexit would have little consequence if the EU had truly free trade and it included those outside the EU.
Unfortunately people in Washington, including Trump who probably does not really understand the concept, free trade has a very different meaning. It has to be negotiated by the governments and using a very opaque process.
MikeN, I am not sure I understand your point in that comment. If you mean that by allowing the politicians in Washington (and it happens in states and local governments) to spend money meant to fund future retirements we are encouraging deficit spending, I would completely agree.
Kenneth Fritsch: “Free trade actually means that governments do not get involved in the trading”.
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But that is impossible; governments are always involved in the process. For example, if you want to import a car into the U.S., it must meet U.S. environmental and safety standards. Government policies affect exchange rates, which affect trade. Any country that has a VAT has border adjustments. And so on.
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Truly free trade between countries with significantly different laws, tax systems, and standards of living is a fantasy. In pursuit of that fantasy, the U.S. agrees to bad deals. Trump wants to bring some common sense to the situation. I hope he does.
I made same back of the envelope calculations for two cases separated by 13 years with in the first case a person working from 1972 to 2016 and retiring at age 65 after contributing the maximum amounts into SS every year and compared that investment growth with a private investment returning 6% per year. That accumulates to an amount of $1,194,282. In the second case the person makes the maximum contributions from 1959-2003 and retires at 65 and would obtain an accumulated amount from the average annual 6% private investment of $453,864.
In the 1972 to 2016 case the person would receive a starting monthly SS benefit of approximately $2650 and in the 1959 to 2003 case the starting monthly SS benefit would be approximately $1700. Adjusting the $1700 for the cost of living yields approximately $2220 for comparison purposes. In my calculations all the moneys paid into SS were used, including disability.
Using the annuity calculator linked below the lump sum in the 1972-2016 case would buy a monthly annuity of $6,526 with no inflation protection and $4,728 with a 3% inflation protection. For the 1959-2003 case the lump sum would buy a monthly annuity of $2,437 with no inflation protection and $1,766 with a 3% inflation protection.
I am dividing the reference links into 3 per post to avoid being moderated – I think.
https://www.ssa.gov/planners/maxtax.html
https://www.ssa.gov/oact/progdata/taxRates.html
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
Post with remaining links to previous post.
https://www.ssa.gov/oact/cola/examplemax.html
https://www.aier.org/cost-living-calculator
https://www.newretirement.com/Services/Annuity_Calculator.aspx
Mike M. (Comment #157816)
January 25th, 2017 at 9:22 am
Actually, MikeM, the US regulations for foreign products can be handled outside a trade agreement.
What is really detrimental for the US and world economy would be the imposition of tariffs and increasing tariffs and border taxes. Not understanding that trade restrictions have negative effects on the US consumer is a major problem as is protecting US industries from outside competition. Trump is playing this card for political advantage to naive political constituents. It will be interesting to see how much the Republican congress is willing to prostitute themselves in going along with a Trump administration on trade restrictions now that Trump is the head pimp as Obama was for the Democrats for 8 years.
Kenneth Fritsch: “regulations for foreign products can be handled outside a trade agreement”.
Of course. I was not defending trade agreements; I was criticizing the idea of no government involvement. Regulations can be used, and are used, to create de facto trade barriers. It is my impression that one of the reasons for trade agreements is to deal with that.
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Kenneth Fritsch: “What is really detrimental for the US and world economy would be the imposition of tariffs and increasing tariffs and border taxes.”
I am inclined to agree re tariffs, especially since they tend to be heavily influenced by cronyism. I don’t know what you mean by border taxes. There are some interesting ideas floating around other than old fashioned tariffs.
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Kenneth Fritsch: “Not understanding that trade restrictions have negative effects on the US consumer is a major problem”.
Not understanding that trade can have negative impacts on the economy as a whole is a major problem.
Pro-free-trade arguments tend to be based on the assumption of economic “equilibrium”. But equilibrium can never exist. It is one end of a spectrum; the other end is the zero-sum reasoning often employed by trade opponents. Reality is somewhere in between. Whether trade is good or bad depends, in part, on where we are on that spectrum with respect to trade with a particular partner. The evidence seems to be that we are on the bad end with respect to certain partners.
Here’s a quick and dirty calculation of how long it takes to break even, ignoring return on investment, by waiting until age 70 to collect benefits instead of starting benefits at age 62.
Age 62 benefit level 0.68*Z, age 70 benefit level 1.32*Z where Z is the benefit payment at age 66. Eight years of benefits = 5.44 * Z. It then takes 8.5 years (5.44/(1.32-0.68)), or age 78.5, before you break even by collecting the same total amount of money. But during the 8 years you weren’t collecting benefits, you spent 5.44 *Z, minimum, before you started collecting benefits. It takes at least another 8.5 years, or age 87, before your net worth has recovered. That’s a bad bet to me, considering that life expectancy for a male at age 62 in 2013 was about 20 years. And I think it gets worse if you assume some return on your investment.
If you continue working until age 70, it’s different. But I didn’t have a job where I wanted to work that long. I took the first retirement buyout the company offered as soon as I was eligible. Also, if you actually need the maximum Social Security benefit at age 70, you probably haven’t been saving enough money.
US regulations already make the importation of foreign products at the least challenging and sometimes expensive. Case in Point.
An industrial project I worked on in Dade County included a considerable amount of German machinery, components of which were installed on the floor of the building in an arrangement which supported their function. Power and instrumentation cables connecting the equipment were run in trenches in the floor with checkered plate covers and in some cases in overhead trays – all standard industrial practice.
Dade County building inspectors came out and rejected all of the cabling. Wiring used did not have Underwriter’s Lab labels which was required of all electrical wiring not enclosed in a machine.
The wiring harnesses had all been made up in Deutschland and had all of the DIN and EU labels anyone could hope for but not UL. The Germans were outraged and showed that their standards were higher than UL’s, but to no avail. the recommendation was to get UL to send someone down to bless what had been done. This would cost $50k as it turned out, an expense which hadn’t been budgeted.
After considerable legal expense the County agreed that although the wiring all ran in trays and trenches, in effect it was internal to the Machinery and therefore the UL label requirement could be ignored. and it was.
The very funny (to me at least) postscript to this episode was that the German equipment became unreliable 6 months into plant operation. It turned out that the local rats liked the insulation on the instrumentation wiring and ate a lot of it which caused signal uncertainty (to coin a phrase). So the Germans got to replace all of the wiring with US wire which apparently didn’t appeal to the rats.
This is one example, but there are hundreds of others where some regulation makes foreign products uneconomic.
I think this is one of the great fantasies about Brexit that somehow the Brits will escape the burden of Brussels bureaucracy. They won’t. they will still have to meet all the EU standards if they intend to sell product in the EU.
I can just see the Chinese doing this sort of thing to us.
Mike M.
There is a complicating factor in US trade, the dollar as the world’s reserve currency. This fact requires that the US have a negative trade balance if we don’t want the global economy to collapse. Tariffs don’t help because that will make the dollar increase in value, lowering exports even if our trading partners don’t retaliate. This is one of the arguments for going back to a gold standard.
Automation is as or more important than foreign trade in the loss of US manufacturing jobs.
To add to my above comment on collecting Social Security at different ages: Most companies wouldn’t invest in a project that required 17 years to see a profit.
DeWitt Payne (Comment #157825) —
For those born between 1943 and 1954, the actuarial reduction for beginning to take SocSec benefits at age 62 (rather than 66) is 75%, not the 68% you cite. (Source) That, of course, would make the balance tip more towards starting benefits early.
I’ve been working on a spreadsheet, but it will take a little more work. I hadn’t been considering the foregone income from drawing down capital to replace deferred income — had thought that just discounting the early income less would do the same trick. I’ll have to think about your method.
DeWitt, thank you for your calculation which is similar to the calculation provided by ‘financial guy’ in 2001 and which until i saw your’s, I had forgotten.
DeWitt: “the dollar as the world’s reserve currency … requires that the US have a negative trade balance if we don’t want the global economy to collapse.”
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Reserve currency status certainly makes it easy to have a trade deficit, but I don’t see why it requires a trade deficit, at least not a large one. And I see no reason at all why the global economy would collapse if we reduce our trade deficit. At worst, that might encourage a shift towards other reserve currencies (the U.S. dollar is the main reserve currency, not the only one). On the other hand, a shift towards other reserve currencies while we still have a huge trade deficit might well be a disaster for our economy. Things that are way out of balance typically don’t end well.
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DeWitt: “Automation is as or more important than foreign trade in the loss of US manufacturing jobs.”
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True. But increased productivity is always good for the economy as a whole. So if individuals are harmed, there is a bigger pie that can be drawn on to help them. Trade is not always good for the economy as a whole. A shrinking pie makes it hard to help those who need help.
Mike M.,
https://en.wikipedia.org/wiki/Triffin_dilemma
This particular problem would go away with a global currency. But that would require a global bank to administer it. IMF Special Drawing Rights are the closest thing we have at the moment, but nobody really wants to adopt them. It would be something like putting the UN in charge of the Federal Reserve Bank. Maybe bitcoin or some other digital currency could work. But the dollar is still likely to be the world’s reserve currency for the foreseeable future.
Search ‘reserve currency trade deficit’ There are a few articles that cast doubt on the necessity of a trade deficit for a country whose currency is the reserve currency, but not many.
This assertion needs support.
DeWitt,
I see where reserve currency status could lead to a trade deficit. What I question is suggestion that we should accept whatever trade deficit we have as a consequence of reserve currency status. In the 50’s and 60’s the U.S. had trade surpluses, but was already the main reserve currency. Even in the 70’s, U.S. trade was much more nearly in balance than recently. So I think there is more to our trade deficit than just reserve currency status.
DeWitt: ” This assertion needs support.” referring to my statement that “Trade is not always good for the economy”.
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See my Comment #157824 above.
Along the same lines, equilibrium arguments assume that when people lose jobs due to trade, they quickly find new work that is at least comparable if not better. If that were always true, then trade would always be good. But that is obviously NOT true recently in the U.S. So some of the assumptions on which pro-free-trade arguments are based are contrary to observed facts.
Not a trade expert, but apparently it is generally accepted free trade is always better in the long term.
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An example was given as “growing cars in Iowa”. The US exports wheat which it makes at a comparative advantage to Japan, etc. Cars which are made more economically there are shipped back in a “free” exchange for wheat. Thus the optimal way to build cars in the US is to grow them in Iowa. The optimal way to grow wheat in Japan is at their Toyota plant. Everyone wins.
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Naturally it is much more complicated when people cheat. Japan dumping DRAM’s to bankrupt American manufacturers or China’s currency manipulations.
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I think what may be missing here is that taken to the logical extreme this breaks down for non-financial reasons. It might be “best” to build 0 cars in the US and have Iowa pay unemployed people in Michigan a living wage but this may be unacceptable for obvious reasons.
Kenneth, my point is that to say things changed when SS went from surplus to deficit is wrong. What year was this? Let’s say it was 2017.
2016, overall deficit 540B SS Surplus 10B rest of budget deficit 550B (numbers made up)
2017 overall deficit 560B SS Surplus -10B rest of budget deficit 550B
You point to this and say see government now has to account for 20 B extra.
But what about
2015, overall deficit 520B SS Surplus 30B rest of budget deficit 550B
Government in 2016 had to make up 20 billion because of SS even though in surplus.
MikeN (Comment #157845)
January 25th, 2017 at 2:23 pm
The simple matter is this: We have a long term problem with running large deficits and building up a national debt that is not sustainable (think what happens when the interest can no longer be kept artificially low by the Federal Reserve) when you pile deficits from a negative cash flow from SS (which we are and it will be increasing in the future) on top of that problem becomes worst.
You appear to be saying that any source of deficit makes no difference to the total deficit because the total is growing – and that makes absolutely no sense to me.
Mike M.
You can’t have it both ways. If free trade is bad for the economy because the people who lose jobs can’t find work, then so is automation for the same reason. The whole point of comparative advantage is that it increases productivity.
During the 1950’s, the Marshall Plan was rebuilding Europe, the G.I. bill was educating former soldiers, delaying their return to the labor force in the process, and regulation and trade barriers were being lowered. We started building the Interstate Highway system, at the time, the largest public works project in US history. We were selling stuff to Europe, paid for in part by money we gave them, rather than buying because the European industrial base had been destroyed. Japan was in similar shape. You can’t have a trade surplus unless you can sell stuff. Obviously, that’s no longer true.
Part of the current high trade deficit is that Southeast Asian countries, burned by the 1997 Asian financial crisis, have accumulated large foreign currency reserves. They don’t want to be dictated to by the IMF in the event of some future crisis like they were in 1997. The IMF has only one arrow in their quiver, austerity.
The world today is not what it was even in the 1970’s, much less the ’50s and ’60s. We can’t go back to the way it was then.
MikeN,
SS went into deficit in 2010. There’s a post above with a quote from the Pew Research Foundation that the deficit in 2016 was $74 billion and the deficit expected this year will be $84 billion. Credited interest still covers this as far as the value of the SS Trust Fund, but it’s still tens of billions of dollars that has to come from taxes, borrowing or printing, i.e. general revenues.
Kenneth, I am arguing a smaller point, that the problem you describe started while SS was still in surplus. As soon as the surplus started shrinking was the starting point.
DeWitt: “You can’t have it both ways. If free trade is bad for the economy because the people who lose jobs can’t find work, then so is automation for the same reason. The whole point of comparative advantage is that it increases productivity.”
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You are mistaken. Our overall economic well being is determined by what we produce. Produce more, and our standard of living is higher. Increasing productivity matters because it increases production. If a productivity increase results in fewer people working to produce the same amount of goods and services as before, then the overall standard of living is not higher (as least as regards material things). But if the labor freed up (i.e., the workers laid off) is then put to use making anything, then the standard of living has increased.
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That is not the case with trade. If people are laid off because of imports, then we are making less and our standard of living goes down. If those people find new work of identical productivity, then there is no change. There is an increase in the overall standard of living only if the freed up labor is put to work at higher productivity than before. That can happen, but it is NOT automatic. And it clearly has not been happening.
DeWitt: ” You can’t have a trade surplus unless you can sell stuff. Obviously, that’s no longer true.”
It seems I did not make myself clear. My point was that it seems to be possible for a country to have a trade surplus in spite of issuing the reserve currency.
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DeWitt: “Part of the current high trade deficit is that Southeast Asian countries, burned by the 1997 Asian financial crisis, have accumulated large foreign currency reserves.”
I am suspicious of cause and effect here. It is not clear to me how a country wanting increased reserves causes a trade imbalance, unless they manipulate exchange rates or otherwise subsidize exports. It strikes me as more likely that our trade deficits gave them the opportunity to accumulate large reserves.
Mike M.
If imported goods cost less, and there would be no reason to prefer them otherwise, then the standard of living goes up, not down. The average consumer will have money left over to buy other stuff. It is identical to improving productivity.
>average consumer will have money left over to buy other stuff
What about the below average consumer who is more likely to lose his job as a result of the imports, or more likely suffer a loss in wages as the jobs are lost by someone else?
DeWitt: “then the standard of living goes up, not down. The average consumer will have money left over to buy other stuff.”
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Less domestic production means the standard of living goes down. If people use their savings to buy domestic goods that partially offsets the loss. But there is no guarantee that the loss will be fully offset, let alone exceeded.
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DeWitt: “It is identical to improving productivity.”
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No they are very different, as I explained above. They are only the same under a very limited set of circumstances.
Mike M.
Look at the actual numbers. We had a positive balance of trade in 1960, but we weren’t trading much. Exports totaled $26 billion while imports were $22 billion. The GDP was $541 billion. Trade was ~5% of GDP. In 2015, exports totaled $2.3 trillion and imports were $2.8 trillion while the GDP was $18 trillion uncorrected for inflation. Trade was ~13% of GDP. Even if you correct to current dollars, that’s a big difference. A lot of people are employed in the export business.
In constant dollars, GDP has increased a bit over five fold, $3.1 trillion to $16.5 trillion from 1960 to 2015 or in 2009 dollars or from $540 billion to $18 trillion uncorrected for inflation. But the increase in GDP of our trading partners has skyrocketed. The Republic of Korea has gone from a GDP of ~$4 billion in 1960 to $1.4 trillion. Mexico from $13 billion to $1.1 trillion. Global GDP has increased from $1.4 trillion in 1960 to $74 trillion in 2015. Those countries didn’t need significant foreign exchange reserves in 1960. They do now.
http://data.worldbank.org/indicator/NY.GDP.MKTP.CD
Trade has been good for the world economy and it has been and still is good for the US economy.
Mike M.
But we don’t have less domestic production. The GDP has increased nearly every year since 1960.
http://www.multpl.com/us-gdp-inflation-adjusted/table
And it’s not just services. According to the Federal Reserve Bank of St. Louls, the real manufacturing output Index in the US increased from 70 to 130 (2009 = 100) from 1987 to Q3 of 2016. It’s been a bit flat during the Obama administration, though. It has barely made it back to it’s 2008 high. But you can’t blame that on global trade. Manufacturing productivity increases mean that we make more than we used to, but with fewer workers.
https://fred.stlouisfed.org/series/OUTMS
DeWitt: “Trade has been good for the world economy”
I am certain that is true. But that is not the issue here. The issue is whether trade with certain countries has recently been good for the U.S. I think it is great if we help other countries, up to a point. The point being when we start damaging our own economy and destroying the lives of American workers.
DeWitt: “But we don’t have less domestic production. The GDP has increased nearly every year since 1960.”
Oh come on, I know you are smarter than that. We have less production than we otherwise would have. That is probably part of the reason that real per capita GDP has grown by 0.6% a year for the last decade.
That is how free enterprise works. Manufacturers seek to lower the cost of production. I don’t know what else you expect to happen, that’s what they do.
DeWitt: “Automation is as or more important than foreign trade in the loss of US manufacturing jobs.â€
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Mike M: True. “But increased productivity is always good for the economy as a whole. So if individuals are harmed, there is a bigger pie that can be drawn on to help them. Trade is not always good for the economy as a whole. A shrinking pie makes it hard to help those who need help.”
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Mike M, I see it differently.
Increases in pie-making productivity displaces some pie makers but results in lower priced pie for everyone. Those displaced are free to find other jobs.
Free-trade displaces some pie makers but results in lower priced pie for everyone. Those displaced are free to find other jobs.
Either way, everyone can enjoy a larger pie without spending more for it.
The problem is the job loses from both rising productivity and free- trade tend to be concentrated geographically and occupationally, and it may be hard for displaced workers, particularly older ones, to move to a new locale or learn a new skill in order to find work. To make matters worse, their new jobs may not pay as well as their old jobs.
Because Americans as a whole benefit from free-trade and labor-saving technology, we should support programs that assist workers who suffer from being displaced.
Watching David Muir interview President Trump right now.
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It is not in fact true that I’d prefer to have my face smashed in with a baseball bat over listening to President Trump answer interview questions with his ‘stream of consciousness’ style. But there are moments when I’d swear I’d prefer the baseball bat. It’s like I’m suffering through a continuous cringe.
[Edit: Last sentence didn’t read quite right. Maybe wince would have been better than cringe. I don’t know…]
MaxOK
I suspect losses from increased productivity tend to create service jobs in locations where the increased productivity occurs. For example: If someone automates making Oreo cookies, people working on the Oreo cookie factory floor do lose jobs. But if that someone also lives near the Oreo cookie company they own– and the remaining more productive workers do too, those people will end up wanting to buy something. That might be going to restaurants, movies and so on. They might buy larger houses, hire gardeners etc.
They are likely to also want to buy physical goods and some of that will be imported, some bought locally. But I suspect in the long run, the jobs lost will be created on the balance. That said: it is true that those whose skill was putting the filling between Oreo cookies might not find new jobs immediately, they might want retraining and so on. But I suspect anything like automation that actually results in increased productivity will improve worker prospects.
mark bofill:
“Watching David Muir interview President Trump right now.”
“It’s like I’m suffering through a continuous cringe.”
_______
mark, i know how you feel. That’s why I no longer watch Trump. Reading his statements isn’t much better.
Max_OK: “everyone can enjoy a larger pie”
Prices are irrelevant to this point.
If people were producing something, are no longer producing anything, and the productivity of other workers is the same, then the pie is smaller.
Lucia, I agree. New jobs in the service producing sector of our economy have more than offset job losses in the goods producing sector. Jobs in services, however, usually don’t pay as well as jobs in manufacturing.
I can understand those who dream of a return to the 1960’s when a person with no more than a high school education could look forward to making a very good living by working in a steel mill, auto plant, or other factory. I believe Trump campaigned on the promise to make that dream come true.
Mike M. (Comment #157876)
January 25th, 2017 at 10:34 pm
Max_OK: “everyone can enjoy a larger pieâ€
Prices are irrelevant to this point.
If people were producing something, are no longer producing anything, and the productivity of other workers is the same, then the pie is smaller.
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Mike M., prices are what it’s all about. There would be no point in investing in labor-saving technology if the investment did not lower the production cost so the good could be PRICED lower and attract more buyers. There would be little point in buying an import rather than a comparable domestically produced good if the import was not PRICED lower.
Mike M, you said “If people were producing something, are no longer producing anything, and the productivity of other workers is the same, then the pie is smaller.”
Sorry, but i don’t understand what you mean. Will you elaborate?
I hear that a lot. But really, I don’t know that it’s entirely true:
https://www.bls.gov/news.release/empsit.t19.htm
Retail and Hospitality pay badly. But if you look at the list, lots of service sector jobs pay well. And to the extent that automation does replace those workers in manufacturing, it’s often replacing jobs that are more easily replaceable, which tend to be lower pay.
It’s true that as automation advances, it can replace more and more complicated jobs that required skills, but still… It’s harder to automate some jobs relative to others.
Max_OK: “Sorry, but i don’t understand what you mean. Will you elaborate?”
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The standard of living is determined by production. Prices, like money, have no independent reality. What is produced has reality, so ultimately that is what matters. If we produced at the level of a subsistence agricultural society, we would be dirt poor, no matter how low prices were or how high wages were. If we produce more, then we are better off.
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So if we want to understand whether or not something improves our standard of living, we must understand how it affects production. Improved productivity increases production. Trade may increase or decrease the production of a particular nation depending on how readily displaced resources, especially labor, get redeployed in a productive manner.
Lucia, I imagine jobs in the fast growing health services pay well. An aging population may need health services more than manufactured goods, except food. But I don’t know we import much food. I see some from Asia, but I’m afraid to eat it.
Mike M. (Comment #157880)
“The standard of living is determined by production. Prices, like money, have no independent reality. What is produced has reality, so ultimately that is what matters …”
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Mike M., I think the standard of living is determined by consumption.
Consumption of domestic goods + imports = total consumption
The lower the price of consumption, the more we can consume, and the higher our standard of living.
>they might want retraining and so on.
The deal made to Democrats by economists is that free trade is a benefit, so you can take the gains and use that to help those who lose jobs, and still the country is better off.
However, this is really a loss for Republicans. Someone moving from work to welfare is not better for the country, even if there is an overall economic gain.
MikeN . “Someone moving from work to welfare is not better for the country, even if there is an overall economic gain.”
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Whether it’s better for the country would depend on how many and how much economic gain.
I believe work is good for the soul and everyone who wants to work should have the opportunity for employment in a job that at least satisfies basic needs.
The effects of automation are worthwhile worries. For example (See H G Wells’ Time machine) what happens when the Morelocks are automated out of their jobs?
so far most automation has happened indoors, more or less invisible to everyone except the displaced.
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The automation of interstate trucking is likely very soon – within five to seven years. interstate trucking is especially susceptible because the terminals can be modified to make departure and arrival handling simpler and the over the road environment is already simple. This will be the first time where everyone can see it happening. What will happen to the guys who still owe $100k on their tractors? there will be tens of thousands of them.
More to follow …
Max_OK: “I think the standard of living is determined by consumption.
Consumption of domestic goods + imports = total consumption
The lower the price of consumption, the more we can consume, , and the higher our standard of living.”
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Money does not grow on trees. You can not afford anything unless you produce something. In terms of your equation:
Production = Consumption of domestic goods + exports
So adding this to your equation gives
Production + imports = total consumption + exports
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So I guess your argument is that if imports > exports then consumption > production and we are better off. That amounts to claiming that if we run a trade deficit we are getting something for nothing. That is like saying that if you use a credit card to pay for stuff, you can spend more than you earn. That works for a while. But eventually, you have to pay the price.
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Who do you suppose is going to end up paying the price: Wall Street or Main Street?
I have to interrupt this academic discussion on an optimal economy through financially engineered trade strategy with this bulletin: It is irrelevant, because we currently have a * politically unacceptable * economy. Not convinced? Two words: Donald Trump.
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The meritocracy has winners and losers. The losers (think of the people in remedial English from your high school) are never going to turn into ace coders through government retraining. Everyone is not going to be above average. Those guys aren’t going to compete with people on this board.
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The horse is out of the barn, the losers have been ignored for more than a decade and just tossed a homemade grenade into your advanced calculus class.
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What is going to be done about it?
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Harvard professors pontificating to themselves on the glories of global free trade has failed. Trust is lost. More importantly, the losers just sent notice they are willing to burn down the winner’s economy if something is not done about it. This clear message is impossible to miss or misunderstand.
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It’s time for the winners to very visibly “take one for the team” and find a way to redistribute the economy in a politically acceptable manner. Yes, the overall economy will probably suffer, but that is a necessary sacrifice.
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Either do it voluntarily or have it done for you by the likes of Trump/Sanders in what is likely to be a very inefficient process. The answer isn’t “you losers just need to become more like us winners”.
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I say this as a lifelong Republican, free trade advocate, winner in the meritocracy, and opposer of social engineering.
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Stupid people have rights and get to vote. We can either find a way to resolve this more equitably or they will do it themselves using Trump/Sanders or worse. It’s time to stop optimizing for maximums and instead optimizing for the lower two quartiles until balance is restored.
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If a trade war with China/Mexico improves this, then so be it. If you don’t believe this helps, better find a way to make a compelling case for why that is in language a 5th grader can understand.
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Above all they feel disrespected (for good reasons) and that is the easiest thing to fix.
Tom Scharf: “Above all they feel disrespected (for good reasons) and that is the easiest thing to fix.”
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Was the irony intentional?
Tom Scharf: “I have to interrupt this academic discussion on an optimal economy through financially engineered trade strategy with this bulletin: It is irrelevant, because we currently have a * politically unacceptable * economy.”
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I have not noticed any discussion of a “financially engineered trade strategy”. The discussion began with moaning about how the fact that we have a political unacceptable economy will lead to economic damage. I don’t think it is “academic” to ask if that is true, or if the real problem is that the elite groupthink on economics might be wrong.
ref: Tom Scharf (Comment #157892)
Tom, you almost get the point but you lose it in a pretty dramatic case of self-inflicted irony. Hint: The modern democratic party/left oligarchy is anything but a meritocracy. It is an in-bred self reinforcing, affirmative action, patronizing, intertwined self selecting group of self declared elitists. Think of Davos: Billionaires and their entourages virtue seeking and getting the “inside scoop” with the net result of making certain the world is safe from fresh ideas or outsiders and that their fortunes are well fed and watered. Think of the last Administration, which would hire close family members of media leaders and centers of influence, placing them in cushy government jobs. Think of the EPA as a revolving door between Big Green lobbying groups and the EPA. And how the insiders would turn Big Green lobbying demands into Court ordered regulations based on pre-arranged lawsuits. How academia self-selects and freezes out academics who don’t toe the line. This is not simply the bright earnest winners needing to have pity on the less bright less well educated. It is instead how the better educated have deluded themselves into confusing their map of reality for reality. There are plenty of well read, well spoken thoughtful people outside of the oligarchy. The oligarchy has simply tuned them out, applying the first fallacy of any self-selected group: We are obviously the best and brightest, so those outside our group are obviously the losers.
Mike M,
It’s only academic in the sense that it is asking the wrong question on trade at this point in time. Even given that our trade situation currently could be optimal, it still needs to be changed. How does one alter trade and do the least economic damage and still satisfy the political problem? I fear we are going deep into amateur hour in damaging trade policy because the experts fail to recognize the politics.
https://mises.org/blog/free-trade-versus-free-trade
Also, I see this great contradiction in people, often from the left, being all for forcing more regulations on businesses without ever being concerned how that might detrimentally affect those workers working in that industry, while getting very worried about “free trade” affecting workers.
No matter what the mechanism which reduces the workforce requirement, people will have to be supported. I don’t doubt that schemes will be devised to tax displacing processes based on some theory of equivalent persons, such that the bigger displacers will bear their share of the ‘salaries’ for the displaced.
What worries me far more than the cost is how will these folks occupy themselves. down our way, a lot of pretty sharp retirees work at HomeDepot because it is something to do. What if those jobs aren’t there either?
Hunter,
Everything I say doesn’t have to be coherent, does it? I’m channeling my Trumpness, ha ha.
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The private sector economy is dominated by college graduates and those who know how to work the system. The public sector is different but is still dominated by those in the top 50% of SAT scores.
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Everybody here will push their kids through good respected schools and hopefully useful majors because we know how to work the system.
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As we moved more toward a knowledge based economy and globalism the low tech / manual skilled jobs were intentionally left unprotected. People have noticed. What is even worse than the real world effects (which seem not all bad, unemployment is low, etc.) is that the knowledge class doesn’t seem to care one bit and wants even more of the same policies. This has left them very exposed politically. Dictatorship of the experts doesn’t work if people don’t trust your expertise.
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Once all the temper tantrums have been worked through, it would be wise to take this very seriously. I think a major shift is occurring to class based politics and the knowledge class doesn’t understand how precarious their positions may be.
In order to increase the standard of living, given a constant amount of resources, productivity must increase and in order for productivity to increase there must be investments made. Investments for producing new and better products must precede consumption. New consumption depends on new products which in turn depend on investment. This is part of the Austrian model and theory whereas the Keynesian model is almost totally consumption orientated.
https://mises.org/library/paul-krugman-and-consumption-myth
Maybe this is the answer. Maybe if I embrace a Trumpish way of speaking it will cease to bother me. Because it does, believe me, it does bother me. A lot of really really really bright people tell me it bothers them. It bothers everybody. And the thing to do about something that bothers everybody is, when I do it, you have to embrace it. It’s like that time, when everybody had to embrace it, except with a twist this time. But that was that time. This time we’re going to do it right.
…
Hmm.
…
Nope. It’s not helping me. It’s like exercising a sprain; just makes it hurt worse.
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/ silly
j ferguson (Comment #157885)
January 26th, 2017 at 6:36 am
You might take solace in the historical example of farming and looking at how many workers in that area were required to produce only a small portion of what is produced today. I come from a farming family that produced zero farmers from my siblings and with my father and mother holding non farm jobs at their retirements.
Agriculture and farming are a big success story – and even with the impediments of government subsidies. Automation, which is just another form of increased productivity, is what allows the economic underclasses to live better than the very wealthy did years ago.
Seriously, I think what bugs me about the way President Trump speaks is this:
When the person I’m listening to forces me to wade through a disorganized ramble, it implies that that person didn’t think communicating with me was important enough to justify taking an extra few seconds out to think through and organize the words before speaking them. It’s implicitly insulting. Maybe I shouldn’t take it that way. Maybe President Trump just can’t help it? I find that so difficult to believe, though.
Oh well. I’m ranting / venting here. Nothing to be done about it except grin and bear it I suppose.
Tom Scharf,
The educated classes are about to get an unpleasant surprise: AI. IBM’s Watson will soon be able to do a lot of things as well as or better than a physician. That’s only the beginning. We’re all going to be low-skilled workers in the not-so-distant future.
Kenneth,
The farm transition took decades, and during a period of industrial hiring, not to mention that kids who grew up on farms were likely to have an array of competences (I hate the term skill-set) which made them eminently employable in all sorts of operations.
I think the velocity of productivity improvements is much higher today and the versatility of those displaced much lower.
I think there’s a lot to what Tom Scharf has written above.
j ferguson,
Actually, the rate of increase of non-farm labor productivity has been declining lately, not accelerating.
http://cdn.tradingeconomics.com/charts/united-states-productivity@2x.png?s=unitedstapro&v=201701041410s&d1=19170101&d2=20171231
Tom, thanks for the feedback. I agree on the education if children completely. Mine graduated from Cornell and Duke, so I lived it. Your conclusion about precarious is spot on. Mark, Trump is speaking clearly, and very positively, to those who actually listen to him and not the parsed highly edited version media is so committed to selling. His choice of hanging Andrew Jackson’s portrait in a prominent position is significant. Jackson’s was a very complex Presidency.
Hunter,
Well, my complaint isn’t exactly that he’s unclear. Before I go any further, I’d like to say clearly that I consider myself a Trump supporter.
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Anyway, there are those who believe that LBJ deliberately held meetings while on the toilet to put people in their place; to let people know that they were unworthy of respectful treatment. Maybe that was so, maybe not. Regardless of the truth of that, I get the sense that maybe it’s the same thing here. That Trump is essentially saying – it’s not worth my time to organize my thoughts before I speak and stay on track.
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I don’t think I’m being unreasonably critical. Here is a sample from the transcript of his recent interview:
Give me a break here. ‘It will be in a form, perhaps a complicated form.’ He’s not saying anything here! ‘What I’m doing is good for the United States, … for Mexico.’ What does that have to do with anything? (rhetorical, my answer: Rambling!) I’m not going to do a line by line on every line, but Trump rambles on to apparently say that this will improve things for Mexico, this will improve our relationship with Mexico. That in the past we had a prisoner in Mexico and Mexico didn’t help us. I’m guessing he is referring to Sgt. Tahmooressi here. But how is this digression relevant to what is under discussion. It’s a bizarre anecdotal non sequitur. WAAYY TOO MUCH of what Trump says is like this. This isn’t the exception; this seems to be representative of the way he talks to reporters.
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I don’t believe Trump is a moron who is doing this accidentally. In my view this is his deliberate choice. I really wish he wouldn’t. Granted, maybe I’m reading the logic behind it incorrectly. What is says to me is – “American dumb[asses], I’m not going to bother to give you well thought out, well organized answers. It’s not worth my time.” Maybe that’s not the message I should be walking away with, but sadly that’s the one I’m getting.
Mike M:” Production = Consumption of domestic goods + exports
So adding this to your equation gives
Production + imports = total consumption + exports”
OK, but let’s not forget services.
Production of good & services + imports of goods & services =
total consumption of goods & services + exports of goods & services
______
Mike M: “So I guess your argument is that if imports > exports then consumption > production and we are better off. That amounts to claiming that if we run a trade deficit we are getting something for nothing.”
No, I’m not saying we would be better off If we import more goods and services than we produce. And I don’t believe we do.
Tom Scharf (Comment #157892)
“If a trade war with China/Mexico improves this, then so be it. If you don’t believe this helps, better find a way to make a compelling case for why that is in language a 5th grader can understand.”
_____
Wall-Mart shoppers will understand having to pay more for much of what they buy. Workers whose jobs depend on exports will understand losing their jobs. Hopefully, everyone adversely affected by a trade war would be intelligent enough to understand why?
Max_OK: “No, I’m not saying we would be better off If we import more goods and services than we produce. And I don’t believe we do.”
You are misinformed. In 2014, we exported $2.34 trillion in goods an services and imported $2.85 trillion, a deficit of $0.51 trillion. That is fairly typical of the last couple decades, sometimes worse, sometimes better.
Edit: Trade is, in general, good. But it is not automatically always good. In particular, sustained trade deficits are bad. My complaint is not with trade, it is with the bland acceptance of large trade deficits.
Mike M. (Comment #157922)
January 26th, 2017 at 12:02 pm
Perhaps you can detail your problem with running trade deficits and whether having trade surpluses could be a problem if the government became obsessed with trade deficits and attempts to artificially change it.
Mike M. (Comment #157922)
January 26th, 2017 at 12:02 pm
Max_OK: “No, I’m not saying we would be better off If we import more goods and services than we produce. And I don’t believe we do.â€
You are misinformed. In 2014, we exported $2.34 trillion in goods an services and imported $2.85 trillion, a deficit of $0.51 trillion. That is fairly typical of the last couple decades, sometimes worse, sometimes better.
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Mike, you misread what I wrote. I said more than we PRODUCE, not more than we export.
Max_OK: “No, I’m not saying we would be better off If we import more goods and services than we produce. And I don’t believe we do.â€
Yes, I misread you. I don’t have a clue what you mean.
Mike M.
Somebody has to run trade deficits for others to have trade surpluses. If a sustained trade deficit is bad, how come the US, with the highest trade deficit by far, also has one of the highest GDP/capita (real question)?
Also, while GDP/capita is an important factor in standard of living, it isn’t the only factor. For one, it doesn’t include personal income. Singapore is fourth on most lists of GDP/capita (PPP adjusted), but it’s 18th on the list of gross median household income (PPP adjusted). Qatar leads all lists on GDP/capita while it’s #23 on the gross median household income list. The US is sixth on the income list with an asterisk. Other estimates of US median household income would put us at the top of the list. Germany is sixteenth on the household income list but is second only to China on the trade surplus list. It’s also fairly far down on the GDP/capita list.
https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita
https://en.wikipedia.org/wiki/List_of_countries_by_current_account_balance
https://en.wikipedia.org/wiki/Median_income
IMO, the most important factors in trade are competition and choice, not current account balance. I wouldn’t want to go back to the days when your only choice in cars was Detroit.
Max_OK,
I think people are to the point where they are willing to find out what happens in a trade war. I think it is correct that they don’t fully understand the 2nd and 3rd level consequences of this. There will be winners and loser in these trade wars, and everyone assumes they will be the winners.
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We didn’t have Walmart back when America was great, ha ha.
Tom Scharf (Comment #157892)
“If a trade war with China/Mexico improves this, then so be it. If you don’t believe this helps, better find a way to make a compelling case for why that is in language a 5th grader can understand.â€
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In language a 5th grader can understand, how do you explain how Trump rejecting the TPP is a gift to China.
The TPP was supposed to be an American led club of friendly countries that liked to trade with each other. But President Trump didn’t like the price of membership and refused to join. China was not going to be a member, but now wants to take our place as the leader of the club. China will get our friends, friends we need if there’s ever a war.
j ferguson (Comment #157914)
January 26th, 2017 at 10:23 am
j ferguson: If you examine these links closely I think you will see that the percentage decreases in farm workers and manufacturing jobs have very similar rates of declines – just over different periods of time.
http://usda.mannlib.cornell.edu/usda/AgCensusImages/1954/02/04/1003/1954-02-04-intro.pdf
https://www.creditwritedowns.com/2012/05/chart-of-the-day-us-manufacturing-unemployment-1960-2012.html
Max_OK,
Trade is a relatively small fraction of the US economy. Imports are about 17% and exports 14%. The trade deficit is, of course, an even smaller fraction, 3%.
Tom Scharf,
There were no winners in the 1930’s trade wars started by the Smoot-Hawley Act. There were lots of winners from globalization. Trade is not a zero sum game.
DeWitt Payne (Comment #157938)
“Trade is a relatively small fraction of the US economy.”
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True, but it’s easy to blame foreigners for your problems.
Max_OK,
Trump says free trade is bad and cost Amurricca therr jawbs. He can point to Mexican car factories and China’s immense manufacturing of products that used to be made in the US. If we stop importing these things and make them here again, well then Amurricca gits jawbs. This is quite tangible, easy to understand, and comes from a billionaire businessman.
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The biggest problem right now is nobody is even trying to refute Trump except with an appeal to self authority: “trade is good, trust us, we’re experts” and that comes from politicians. Free trade has exited the Overton Window in the establishment.
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Trump is easily winning this argument on emotion and its merits (because nobody is even making a counterargument). Then Trump immediately shows that just threatening companies can keep them in the US without actually imposing tariffs, Obama could just as easily have done this. Who you gonna trust?
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To win this argument, the political class has to engage in it.
DeWitt,
Trade wars are bad news, every bit of pain imposed is reciprocated in kind. Trump imagines that the US is not using its leverage properly and can get better deals without a trade war. He may be right, he may be full of it. If a deal was being negotiated between Obama and Trump I would bet Trump gets the better side of the deal every time. In the end countries trade for mutually beneficial reasons and will continue do so because its in their interest. The definition of “best interest” might need to be adjusted.
Tom, the benefits of free-trade are diffuse, the drawbacks are concentrated. Everyone is helped a little, a few are hurt a lot.
The few complain loudly, but everyone else doesn’t say “isn’t it nice to buy things for less money.”
But a trade war can have immediate and dramatic concentrated consequences. Imagine how Seattle would complain if China cancelled a huge order for Boeing planes and gave the order to AIr Bus.
Max_OK,
Indeed. Which is exactly why despots from Putin to Maduro resort to it constantly.
Tom Scharf (Comment #157943)
“Trade wars are bad news, every bit of pain imposed is reciprocated in kind. Trump imagines that the US is not using its leverage properly and can get better deals without a trade war. He may be right, he may be full of it.”
_______
Buy more of our stuff or we will buy less of your stuff. That threat might work in some situations.
Out of curiosity, I plotted household median income vs. GDP/capita for the first 29 countries on the median household income list. The correlation is weak. Using the Excel CORREL function, it’s 0.178. If I remove Qatar as an outlier, it goes up to 0.45, but it still looks more like a shotgun pattern.
WH says 20% Mexican border tax pays for the wall. Should be interesting to see how well that goes over. I assume Mexico will announce a counter-tax to pay for border tunnels.
Tom Scharf,
Only if it passes. The auto industry will scream bloody murder. They pass stuff back and forth across the border multiple times. As a result, I seriously doubt it will pass. You’d also have to tear up NAFTA. Presidents have unilaterally abrogated ratified treaties, but only when there was wide popular support. I’m sure that there is support, but I’m not sure it’s wide.
You wouldn’t need a wall with a strong Mexican economy.
Mark Bofill, Give me a break here. ‘It will be in a form, perhaps a complicated form.’ He’s not saying anything here!
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Trump is not saying anything less than the average politician. He is just not as polished at being vague. Many people, including myself, take more offense to someone taking great efforts and time to compose a non-informative answer. We assume Trump values his time as a doer not an eloquent talker. A completely honest and direct person would get eaten alive by a rival partisan in about 2 seconds.
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What I and many others hear Trump saying on Mexico is that we are not accepting the past status quo of allowing illegal immigration and drug trafficking across the southern border. We disagree with the philosophy that since America is a wealthier country that gives Mexicans (and others) license to disrespect our border and our laws, and also disrespect our citizens should they be unlucky enough to wonder into Mexico by accident. If we are wealthy enough we can afford to be taken advantage of we are also wealthy enough that we can afford to stand up for ourselves. Of course, if one tells someone who is used to getting something that they are no longer getting a sweet deal they will not take it well. I don’t that’s a problem to be fretted.
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j ferguson: What will happen to the guys who still owe $100k on their tractors? there will be tens of thousands of them.
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That person will be forced to innovate. Perhaps they can specialize in valuable or hazardous hauling that is not appropriate by auto-driven vehicles. Or they can sell the vehicle to be retrofit and get a job doing the retrofitting. Or start a business.
Ron Graf,
Building a wall won’t stop drug trafficking and it’s closing the barn door too late for illegal immigration, absent a collapse in the Mexican economy. Illegal immigration peaked in about 2000 and has been declining ever since. Central Americans now outnumber Mexicans and there are more families and unaccompanied children. That doesn’t exactly fit the description of bandidos.http://www.pewresearch.org/fact-tank/2016/04/14/mexico-us-border-apprehensions/
http://www.bbc.com/news/world-us-canada-34934574
Tom, Mr. Trump says that badly written trade agreements are bad for jobs.
He does not say “free trade is bad”, from what I have heard him, in context, actually say.
Just as he has never said, “immigration is bad”. He says that illegal immigration and poorly regulated borders are bad.
You may recall that he is close to being pro-immigration that he did marry an immigrant.
Ending the extreme out of control immigration and complex over broad trade deal culture is a tough job.
Replacing those with something that helps average Americans is going to be a challenge.
We will see if he is up to it.
I do not believe I have ever seen a first week President do as much as dramatically as Mr. Trump. It will be interesting to see what the second week brings.
I recall going through Douglas Arizona thirty years ago and seeing the miles long twenty foot high steel wall. Most border towns have had a wall in place for a long time. ( It is a fence in El Paso ).
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There are gates in the walls, as well there should be – we do a lot of business two ways with Mexico.
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Further, there’s been money for building border fence in the federal budget for the past two administrations.
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The whole thing is, like most things politics, is a lot of posturing about marginal differences of little significance.
DeWitt, in the 2008-2009 crash there may have been more illegals exiting than entering. With your logic we should not have enforced our border at all then. The obvious problem is that we don’t know what at any time might cause a flood of Mexicans or citizens from any South or Central American country to take to the railways for our border. As for drugs, I just threw that in. I’m for giving people all the drugs they want to put in themselves. I’m also for creating an economy where there will be so much opportunity there will be few with the time to drink and get high. I believe automation does not kills jobs in the long run. It gives us a better standard of living and frees us to have more interesting and creative jobs – if encouraged. Intoxication is self-medication is for hopelessness and boredom.
Tom Scharf (Comment #157952)
“WH says 20% Mexican border tax pays for the wall. Should be interesting to see how well that goes over. I assume Mexico will announce a counter-tax to pay for border tunnel.”
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Good one! I like your sense of humor.
A wall that would draw tourists like China’s Great Wall should be considered. If Mexico is paying for it anyway, why not insist on an attractive wall. Plain cinderblocks and wire fences are ugly.
Turbulent Eddie (Comment #157965)
The whole thing is, like most things politics, is a lot of posturing about marginal differences of little significance.
_____
If you are saying Trump is full of hot air, you may be right.
But he could damage our relations with Mexico and make its government more receptive to strengthen ties with China.
Ron Graf,
Please cite where I said I was in favor of completely open borders. I don’t think you’ll find any instances because I’m not. What I have written on several occasions is that immigration quotas have been far too low, especially for the H-1B visa program for skilled workers, and there is also a need for a guest worker program for jobs that Americans aren’t taking, seasonal farm labor i.e., and for people who want to work but not immigrate.
You can’t hire American if there aren’t enough of them with the right skills. The current H-1B program is both a PITA and expensive. Companies wouldn’t use it if there were enough American workers. Look at the relative dearth of American enrollment in STEM graduate schools.
Thanks Ron.
I don’t think that’s Trump, actually. That’s not the guy who said (paraphrasing) that he would appoint a pro-life justice to hopefully overturn Roe vs Wade. That’s not the guy who’s saying (paraphrasing) that if his guys think waterboarding is needed, they get to waterboard. I don’t believe Trump gives a hoot about getting eaten alive by rival partisans.
I don’t have any particularly good basis for my own suspicions, but. I still believe he’s deliberately chosen the style he’s using for whatever reason.
Anyway. Thanks for your thoughts.
> Companies wouldn’t use it if there were enough American workers.
So what about the companies that are firing their existing workers to replace with H1, in some cases training their replacements.
The new IBM announcement of hiring 25,000 is just trying to kiss up to Trump. They are still firing.
“Scientists say” Doomsday clock moves closer to midnight.
DeWitt: Please cite where I said I was in favor of completely open borders. […if you cite where I said you were not.]
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Building a wall won’t stop drug trafficking and it’s closing the barn door too late for illegal immigration…
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We are probably nit-picking each other since you are for border security but are just more accepting of the liberal argument that barriers don’t deter people. Today not only is there no barrier for much of the border, there are water stations on the crossing paths. We are both for legal immigration of people that will enhance the economy.
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I just think if you don’t want strangers walking into your home the first obligation is to close your door.
HaroldW
I think the real reason for the 30 second mark is that we clearly aren’t “passed” midnight.
It’s a PR device they began in 1953 and they progressively moved it so close for dramatic purposes that they haven’t left room for the numerous remaining events that would be required to claim we are still approaching midnight but haven’t passed it. At some point, they are going to have to pare down their shifts to 15 seconds, then 5 then 1 second and finally milliseconds.
Either that or “something” needs to happen to motivate them to move it way back to 10 pm or something. They’ll add all sorts of verbiage to explain why that trivial thing is a big shift back in time– but the real reason will be “we need more space between now and midnight, and this gives us an excuse to put some in there while telling people what an important thing some particularly not very important even is to saving us from doom.”
Mark: I still believe he’s deliberately chosen the style he’s using for whatever reason.
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Many people thought Trump was “choosing a style.” I think we have learned that he is the same guy in the primary as he was in the general as he is as President. Your examples of his (atypical for a politician) political incorrectness was part of his appeal. This might be the same appeal of reality TV. We seem to want such transparency. I would not be surprised if a second Trump term brought in a White House reality TV show. Wait, maybe we already have it.
Does Trump actually believe that a 20% tax on imports from Mexico means that Mexico is paying for his wall?
What does he do for a fence along the river? He can’t put it in the middle of the river, so he has to put it on US land, effectively ceding the river to Mexico.
Bugs,
No one can know what Trump “actually thinks”. I don’t think putting a fence on US land is effectively ceding the river to Mexico.
“Many people, including myself, take more offense to someone taking great efforts and time to compose a non-informative answer.”
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This is the media gotcha game, this has become so tiresome I cannot even begin to state how frustrated I am with how they do this to everyone. I don’t care what inartfully left someone’s mouth, I care what they really think. It’s the media’s job to determine what they actually think, what their actual position is, and report it. Like yourself I don’t find the skill to speak and never actually say anything to be a prized asset, but the media has forced politicians into this corner.
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Trump has many faults, but exposing the gotcha game for the empty shell that it always was is praiseworthy.
lucia (Comment #157985):
Yes, exactly. I didn’t mind it much when the clock was their assessment of US/USSR nuclear conflict — that certainly qualified as “Doomsday”. But then they moved the clock a lot when other powers had acquired minor nuclear capability. That didn’t seem commensurate with the prior threat.
When they added climate change in 2007, it became entirely a political charade. These are (allegedly) atomic scientists — I can give them a certain amount of credibility regarding nuclear weapons, but none regarding climate. [2010: “Most notably, at Copenhagen, the developing and industrialized countries agree to take responsibility for carbon emissions and to limit global temperature rise to 2 degrees Celsius.” Well, that’s one take on that conference.]
What’s annoying to me is that (some) folks still consider this a scientific evaluation: “Look! Donald Trump has moved the world closer to disaster!”
Building a wall is mostly symbolic, it’s a “we aren’t going to take this anymore!” primal scream that throws red meat to the base.
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Walls aren’t totally useless either. I just finished a book Narconomics in which they describe how border crossing has become progressively more expensive since 1970 and now 95% of crossers require guides (coyotes) to get across. They pay $2,000 to $5,000 to get across. They have about a 30% to 50% chance of getting caught even with guides, but they just turn around and try again. Their payment is good for as many tries as it takes to get across.
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Depressingly many people who are sent back, especially those who have lived here for years, simply turn around and recross immediately.
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So border security is increasingly a deterrent via cost. That doesn’t necessarily mean less people try to cross though, it does mean coyotes and cartels now find human trafficking a lot more lucrative than it used to be. It’s a classic arms race. Cocaine, heroine, and meth are still far more profitable than humans.
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Interestingly the author believes the legalization of marijuana in Colorado is taking a bite out of Mexico. The legal grow factories there produce much higher quality than Mexican imports. Free market and free trade working! Ha ha. As pot gets further legalized the expectation is Mexican imports will disappear.
NYT: Counting the Winners and Losers From an Import-Based Tax
https://www.nytimes.com/2017/01/26/business/economy/import-tax-business-reaction.html?_r=0
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Republicans thinking of lowering corporate tax and offsetting that with import taxes. Pushes a lot of the right buttons. Changing tax policy always dies because special interests get in the way. Better to “pass it to find out what’s in it” in this case too, ha ha.
Tom Scharf,
Sure smuggling pot isn’t as profitable as it used to be, but that doesn’t mean the drug cartels have gone away. They’re producing and smuggling more heroin and methamphetamine.
http://www.businessinsider.com/mexican-control-us-heroin-market-2016-12
DeWitt,
Apparently heroin is making inroads to middle class whites, especially women. Supposedly rampant Oxycontin abuse is leading to a change to more economical highs using heroin.
Tom Scharf,
Opioid abuse, prescription and otherwise, is indeed rampant. We just had a local TV news bit on a local police department equipping all their officers with opioid overdose rescue kits, which use naloxone. CVS pharmacies in 14 states are planning on selling naloxone without a prescription. Somewhere on one of these threads, I posted links to a series of articles about opioid abuse that included a reference to a pharmacy in West Virginia that received hundreds of millions of pills annually. That would seem to be a no-brainer for the DEA, but no.
While this post is about the Trump administration changing things in its first few days, Donna Laframboise has a post up about the Obama administration changing things in its last few days. This is a change in policy concerning media relations for DOE scientists.
Tom Scharf (Comment #158001): “Building a wall is mostly symbolic, it’s a “we aren’t going to take this anymore!†primal scream that throws red meat to the base.”
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It is saying that you will build a wall that is mostly symbolic. It’s “borders matter and we are going to take border security seriously”. As such, it is a perfectly reasonable policy. Securing the border requires many elements: A sufficient density of agents, electronic surveillance so that they can see where they need to be, roads so that they can get there, and a barrier to slow down intruders and give agents time to respond. A wall, by itself, won’t do much.
This 20% tax is an attempt by Paul Ryan to con Trump. It is not a tax on imports, but a tax on all goods sold in America, whether by a US or foreign company. So Ryan says tax imports and don’t tax exports for this change in corporate tax rate. Is this what Cruz was referring to during the primary when he said he would tax imports and also that he was against tariffs.
lucia,
I think bugs has a valid point here. A wall would block access to the river bank for US border dwellers like ranchers while still allowing access from Mexico. So while the official border might still be in the middle of the river, build a wall or fence on the US side and it amounts to giving that part of the river to Mexico in practice.
DeWitt,
Our coast guard and ships would still move up and down the river.
I do think it’s taking the border strip from private individuals which would require restitution.
lucia,
That’s a better phrasing. It would indeed be a taking rather than a ceding.
Re: Wall
….
I don’t know if a wall will work, but in my mind, if it costs $15,000,000,000 that is pennies compared to the costs of having effectively open borders. I believe it should be tried. Of course, it won’t be anywhere 100% effective, but in conjunction with other procedures, it may turn out to be part of a solution. Until we try to do something (as opposed to the de facto policy of Obama to welcome virtually everyone in), we will never know if something can succeed.
….
Potentially, sensors along with financial penalties and/or disincentives in conjunction with a wall might put a good dent in illegal border crossings. The Left really doesn’t object to the cost — it simply objects to any effort to stem an open sieve of a border. Of course, Trump has often been clumsy and stupid, but at least he has the objective of securing the borders.
JD
JD,
It seems obvious to me that a cost of $15 B should be a concern for Left and Right alike, unless the expenditure is well justified.
For example:
– What is the supporting data on the claim of much higher cost of having “effectively open borders”?
– How many illegal immigrants come through the border by walking across the partially-fenced border, as opposed to other means?
– How much benefit will a $15 B wall offer over what is currently existing, and how practical is the construction at this cost estimate?
During the campaign Trump said he was planning a wall on just part of the border because of natural boundaries like the Rio Grande.
Oliver, given the enhanced interior enforcement measures with more deportations, a wall may be more necessary even if it wasn’t very necessary in the past.
Oliver: “What is the supporting data on the claim of much higher cost of having “effectively open bordersâ€
ONe estimate is $100 billion. See http://abcnews.go.com/Business/illegal-immigrants-cost-us-100-billion-year-group/story?id=10699317
…
Your other questions are good questions, but under Obama no one in the government was asking them. Instead, we get ridiculous appeals to emotion like calling the children of illegal entrants “dreamers.” I am happy to look at the financial issues closely. On the other hand, the biggest cost for me is the breakdown of society and governance that occurs when there are open borders and many people come who don’t accept the basic tenets of Western societies. Unless there are some basic shared values, you can’t have a functioning society or government.
JD
JD Ohio,
That estimate is from just one side of the argument, the Federation for American Immigration Reform. It ignores lots of things. The article itself doesn’t support the conclusions of FAIR.
Dewitt: ““We don’t generally ask these questions about anybody else,†says Passel. He points out that using the “cost†argument, one could make a case against parents who generally benefit more from public schools than the taxes they pay. “It’s not a subject that there is a definitive answer to.â€
….
I agree that cost estimates can be highly variable but my point is that a reasonable argument can be made that illegal entrants cost money. I made clear in my post that my bigger concern was: “the breakdown of society and governance that occurs when there are open borders and many people come who don’t accept the basic tenets of Western societies. Unless there are some basic shared values, you can’t have a functioning society or government.”
……
I would also add that my original point was that a $15 billion wall was pennies compared to what the US spends as a whole and compared to the problems caused by illegal entry into the US. I should have pointed out that the $15 billion figure is mostly a one-time figure for building the wall, whereas whatever illegal entrants cost the US is a recurring figure that would be expended indefinitely under the Left’s policies.
Passel’s point just makes my point even stronger. He is arguing that illegal entrants should be entitled to all of the benefits of being in the US on par with those who are citizens — that there is no functional difference between a citizen and a non-citizen. I reject this position very strongly, and his position is precisely the functional position of the Left that I object to so much [and is the reason I held my nose and voted for Trump}. My fundamental point is that we cannot have a country if anyone who wants to sneak in can come in and be treated like a citizen. My further point is that the US has the right to choose those potential immigrants and refugees who would benefit the US the most. For instance,the US has the moral and legal right to admit more Chinese than Muslims because the Chinese contribute more to the US than Muslims and the Chinese are much less likely to be terrorists than are Muslims. (For instance maybe 1 in 2,000,000 Chinese may turn out to be a terrorist and 1 in 75,000 Muslims will turn out to be terrorists.)
….
The US has no obligation to absorb the problems of other countries who are at war or are in disarray. The US has every right to determine who best would tend to contribute to US society.
JD
JD Ohio,
There’s an obvious functional difference between citizens and resident aliens, legal or illegal. Resident aliens can’t legally vote or hold public office. They are also subject to deportation after due process. We may choose not to deport, but that doesn’t eliminate the option. Only the lunatic fringe thinks that resident aliens should have all the rights and privileges of citizens. Amnesty for illegal residents would not grant them citizenship. It never has in the past.
JD Ohio,
Why don’t you start a petition to remove the plaque with Emma Lazarus’ poem, The New Colossus, from the Statue of Liberty. I’m seriously tired of this modern version of the Know-Nothing movement.
Dewitt: I make a huge distinction between legal resident aliens and illegal entrants. (I wouldn’t use the same term “resident” to describe them)
…. Also, this statement is wrong: ” Amnesty for illegal residents would not grant them citizenship. It never has in the past.” See https://www.washingtonpost.com/news/wonk/wp/2014/11/26/what-happened-to-the-millions-of-immigrants-granted-legal-status-under-ronald-reagan/?utm_term=.efd9be2b4502
Dewitt: “Only the lunatic fringe thinks that resident aliens should have all the rights and privileges of citizens.” I wish this statement was true. In California for instance, there were serious discussions about permitting illegal entrants to serve on juries and vote. (didn’t pass) I think this precisely the policy of the leaders of the Democratic party who want to import poor people who they believe will ultimately vote and have babies who will eventually vote as Democrats.
JD
Dewitt: “Why don’t you start a petition to remove the plaque with Emma Lazarus’ poem, The New Colossus, from the Statue of Liberty.”
….
I don’t know what is says and I don’t care. I am tired of all of the appeals to emotion and lack of factual knowledge of the open border advocates. The Left calls law breakers undocumented “immigrants” and comes up with the ridiculous term “dreamers” for the children of the law breakers.
….
I would add that I am very much in favor of legal immigration.
JD
JD Ohio,
I think multiculturalism in all its forms is a serious error. We should make English the official language of the United States. Printing ballots in multiple languages is the height of idiocy. A knowledge of English is still a requirement for naturalization, after all. Bilingual education is also highly questionable if it’s used as a crutch so children who don’t speak and read English don’t have to learn.
Your link above showed that only about 1/3 of those granted amnesty eventually applied for citizenship and were naturalized. My point is still valid.
Mike N.
The Rio Grande may be a natural boundary, but it’s not necessarily a barrier. The derogatory term ‘wetback’ has a reason for its existence. There are a whole lot of places where you can reasonably safely wade across the river.
And then there’s the environmental impact: http://www.newsweek.com/2016/02/26/environmental-impact-us-mexico-border-wall-426310.html
Dewitt: “Your link above showed that only about 1/3 of those granted amnesty eventually applied for citizenship and were naturalized. My point is still valid.”
….
Dewitt previously stated: ” Amnesty for illegal residents would not grant them citizenship. It never has in the past.”
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You raised the point that Amnesty had nothing to do with the granting of citizenship, not me. It clearly does. Your statement was 100% wrong. Even if you meant to say that comparatively small numbers of people eventually received citizenship, you didn’t do so. Also, I don’t agree that 900,000 people who entered the US illegally and who received citizenship is a small number. Further, the Left’s policy is to admit more and more illegals, so the number of illegal entrants (and eventually entrants who would become citizens) would grow substantially if the policies of Obama and the Democrats were enacted.
JD
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Yes, the Rio Grande is dammed and for the winter half the year it looks like this in many places:
http://ramblingspoon.com/blog/wp-content/uploads/2012/11/Dry-Rio-Grande2.jpg
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Not a barrier to anyone.
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For those who have crossed the Mississippi, the name Rio Grande is definitely misleading. By Eastern standards, it is a glorified creek. Still, it’s one of the larger and longer rivers in the desert southwest and must have been a welcoming sight to travelers.
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There is a fence in El Paso, and in fact as I recall the last time I went through Douglass Arizona ( thirty years ago ) there was a huge twenty foot tall metal wall that went through town and a few miles out.
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The whole thing about the wall is politics in its pure state. There have always been walls, though not for the complete border. Trump talks about to stir up his base. Opponents talk about it to stir up their base.
Russia Considers Returning Snowden to U.S. to ‘Curry Favor’ With Trump: Official
http://www.nbcnews.com/news/us-news/russia-eyes-sending-snowden-u-s-gift-trump-official-n718921
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That sound you hear is Putin laughing so hard he peed his pants. That guy has a sense of humor.
DeWitt, I’d be OK with it. That poem has nothing to do with liberty.
MikeN,
But it has everything to do with the statue itself. It compares the Statue of Liberty to the Colossus or Rhodes. It was an important factor in the fundraising effort.