by hilzoy
If anyone on Wall Street is wondering: what is this "it" that we are supposed to "get"? Is it just that people are angry? Could I be one of those people who don't "get it"? If so, how would I know?, s/he could do worse than consider this YouTube of CNBC's Mark Haines interviewing Rep. Brad Sherman (D-CA) (via TPM). It's a pretty good diagnostic tool.
This is what "not getting it" looks like. At about 50 seconds in, Haines says: "You and people who share your opinions seem to feel that, you know, let's hold salaries on Wall Street to $100,000. Do you have any idea what Wall Street would look like if you did that?" If your immediate reaction is: that's telling him, Mark Haines!, then you don't get it.
A couple of years ago, it would have been hyperbole to suggest that we would all be better off if the senior executives at all our major financial firms were people picked entirely at random out of the phone book. Now, it's arguably true. People picked at random would, admittedly, be likely not to have been to business school. They might not know a lot about futures or derivatives or put options. But so what? At least they might have been more likely to know that they were clueless, and a few of them might have had the common sense to ask questions like: will housing prices really go up indefinitely?
In any case, what's the worst they could have done? Bankrupted their companies with ludicrously risky gambles that fell apart once markets went south? Destroyed trillions of dollars in value? Brought the world financial system to the brink of collapse? Left taxpayers across the globe on the hook for trillions of dollars? Bankrupted entire countries?
Oh, right.
"Getting it" means understanding that the entire story that some people on Wall Street have told themselves about why they got such obscene levels of compensation is false. As a group, they were not uniquely talented. They did not make a lot more money for their company than they earned, at least not in the long run. Their salaries were not fair compensation for the value they produced. It would not have been worse if they had been replaced by people chosen at random.
Look at the YouTube clip again. Mark Haines seems astonished and baffled by Rep. Sherman's comments. He acts as though he's dealing with some ignorant Yahoo who just doesn't see that when people on Wall Street and people on Main Street disagree, Wall Street is obviously right. That's why he takes "What do people on Main Street know about running a financial system?" to be such a killer response to Sherman.
A few years ago, it would have been a killer response. Normally, it makes sense to think that people on Wall Street know more about running a financial system than people chosen at random, just as it makes sense to think that a successful director knows more about making movies than I do. When people reach positions of prominence in a given field, it makes sense to think that their opinions about the field they work in are entitled to some deference*. It takes a lot to completely forfeit any right to that deference. But the people in the financial services industries have managed to pull it off.
And that's what Mark Haines doesn't get.
* Preemptive footnote: their opinions are entitled to "some deference", not "complete deference". Imagine me talking to a successful director about what really goes on in the movie industry: I don't think that I should slavishly abdicate my judgment just because the director is successful, but I do think that before I go spouting off, I ought to take seriously the possibility that that director might know more than I do. That's all I mean.
In the same way that many self-annointed so-called constitutional lawyers don't get it like Main Street does.
Posted by: GoodOleBoy | March 20, 2009 at 10:00 PM
"...s/he could do worse than consider this YouTube of CNBC's Mark Haines interviewing Rep. Brad Sherman (D-CA)...."
But, but, but... Battlestar Galactica is concluding!
;-)
Posted by: Gary Farber | March 20, 2009 at 10:22 PM
"... self-annointed so-called constitutional lawyers...."
Who and where are these people? I'd like to read more about them.
Posted by: Gary Farber | March 20, 2009 at 10:32 PM
Hilzoy: " 'Getting it' means understanding that the entire story that some people on Wall Street have told themselves about why they got such obscene levels of compensation is false. As a group, they were not uniquely talented. They did not make a lot more money for their company than they earned, at least not in the long run. Their salaries were not fair compensation for the value they produced."
The first word that springs to mind is arrogance; the second and I think better is hubris. The great example of Hubris when I was growing up was the Titanic. In high school Canadian students were subjected to an epic poem on the subject by EJ Pratt. (It is long, but here is the URL- sorry I don't know how to imbed a link: http://titanic1912to2012.homestead.com/ejpratttitanic.html
I have read that a mathematical formula had been developed which the financial community thought allowed them to (I'm tempted to say "magically") accurately assess risk. They were wrong.
The best thing that may come out of this AIG bonus mess may be the examination of levels of compensation. At one time I think it was thought the ratio between the highest paid and the poorest in a society should be 20:1.
Shortly after the Enron debacle, Professor Coffee of Columbia gave a lecture in which he explained the transformation of executive compensation. As I recall his thesis was that the 1980's critique was that CEOs, paid a mere salary, didn't have the same incentive as shareholders. So they were interested in making their companies larger but not necessarily maximizing shareholder value. Solution give them vast quantities of shares options. Soon the motive of these executives was to maximize share price in the fiscal period so as to be able to cash in the share options.
Focused on short term, incentive to take risks, watching comparable executives taking ever greater risks.
Better regulation and recognition of the problem of hubris are hopefully lessons that will be learned.
Fareed Zakaria pointed out in a column not too long ago that the Canadian banking system has fared much better than US. My impression is that this was no thanks to the bankers who regretted the tighter Canadian banking regulations that kept them at leverage of 12:1, when US banks were leveraging at 3 times as much; and the slowness of Cdn govt to allow 100% mortgages when it was all the rage south of the border.
Posted by: Johnny Canuck | March 20, 2009 at 10:52 PM
How much executives are paid is a relatively insignificant issue compared to the $1 trillion per year deficits being predicted for the next 10 years by the CBO. These deficits occur even after the Obama income tax increases, cap and trade tax increases, social security tax increases, and reduction in military spending. It is nuts.
Dem response; "But Bush did it first".
Posted by: d'd'd'dave | March 20, 2009 at 11:05 PM
No, it's thank you for the response, Mr. Hoover.
Posted by: gwangung | March 20, 2009 at 11:17 PM
d'd'd': this dem's response: Bush did it during an expansion, when one ought to be building up a surplus. And he did it in stupid, wasteful ways that produced very little tangible good: infrastructure, etc.
Posted by: hilzoy | March 20, 2009 at 11:18 PM
Go get it, Hilzoy!
Posted by: John Thullen | March 20, 2009 at 11:22 PM
"Mark Haines seems astonished and baffled by Rep. Sherman's comments. He acts as though he's dealing with some ignorant Yahoo who just doesn't see that when people on Wall Street and people on Main Street disagree, Wall Street is obviously right. That's why he takes "What do people on Main Street know about running a financial system?" to be such a killer response to Sherman."
"It would not have been worse if they had been replaced by people chosen at random."
Hilzoy, I think your last statement is true in one sense and almost irrelevant in providing guidance as to what should be done now and by whom.
In 1983 an Air Canada Boeing 767 left Montreal without sufficient fuel due (says Wikedia) "to a chain of minor human errors which combined to defeat built-in safeguards",including a mathematical error on the part of the flight crew. The plane ran out of fuel at 41,000 feet. Now it is true that if you had randomly selected any passenger to take the throttle before takeoff, "it would not have been worse". In all likelihood the plane would never have got off the ground. The passengers would all have been better off. But, to amplify the metaphor,at 41,000 feet Americans are eager- not only to order the flight crew out of the cockpit, but also to question any flight crew.
I don't get CNBC and have never heard Mark Haines, but I certainly would share the perspective that Sherman is a dangerously ignorant yahoo. He's found his scapegoat. He'd rather argue from a vast fund of ignorance.
As I said in my prior comment - i think the underlying issue is hubris. It would be nice to see some humility on the part of Wall Street, but to suggest that, as Sherman did, all AIG knows is how to destroy, is untrue and counterproductive to getting a solution.
Apparently 20 arrogant people at AIG FP caused the problem. Not the several hundred left behind mopping up the mess. And given that Nick Leeson single handedly destroyed Barings bank in 1995 through derivative trades i don't doubt a few people could have caused all the trouble at AIG.
In midair I'd much rather have an experienced pilot - even the one who caused the problem, but better other experienced pilots- rather than ranters from Main Street,to get me out of the mess.
Fortunately, like your Captain Sullenberger, the pilot of the "Gimli glider" was an experienced glider pilot, and brought the plane in safely.
Rather than ranting, inciting mobs and behaving in a McCarthyesque fashion, would that your politicians would provide a little moral leadership, conduct a sober investigation, try to facilitate a soft landing rather than witchhunting.
The problem with witchhunting is that many innocent people suffered. Query whether any guilty ones ever did!!
Posted by: Johnny Canuck | March 20, 2009 at 11:35 PM
Further, the signal for the end of the great 21rst century bear market will be CNBC and FOX business news going under.
Silence.
Glib optimists with salt poured into their mouths forever.
Glib optimists collecting unemployment.
Then it will be time to buy.
When the Food Channel fires Emeril and makes a simple porridge and charges nothing for it, it will be to eat again.
When Jim Cramer enters a nunnery and keens from the widow's walk, buy S&P futures.
Posted by: John Thullen | March 20, 2009 at 11:35 PM
d'd'd',
Do you have a substantive suggestion about how to run a balanced budget this year? Or next year? Or the year after that?
Have any republicans advanced any such suggestions?
Have any budgets been balanced under a Republican president since 1980?
Can we finally agree to give up this charade that Republicans care about fiscal responsibility?
Posted by: Whammer | March 20, 2009 at 11:37 PM
Johnny Canuck,
As you have observed here and on a prior thread, the public and political response in the U.S. to major crises is usually not calm and rational. The reaction sometimes exacerbates the problem. It's just the way things are down here.
The curtain has been pulled back on the Wall Street wizards. We have seen glimpses of this before, for example the famous Enron trader tapes where they discussed screwing the grandmothers in California, but now the facts are undeniable: these people made book when they could not cover bets, to adopt Bernie Yomtov's reference to Tom Lehrer. This has been a shock to some people, and it comes at a time when we've already suffered other shocks. But does AIG pull back? No, they sue the federal government claiming the IRS has been unfair to them.
Investment banking may serve a useful societal purpose, but the arrogant attitude of the financial industry and its cheerleaders is now on display for all to see. Even after a spectacular failure these people believe they are entitled to riches -- after all, who else can clean up the mess?
I do not advocate torches and pitchforks. That makes matters worse. But, I understand the impulse.
Our government, designed by geniuses to be run by idiots, cannot act swiftly. Thank goodness for the separation of powers. We may not make optimal decisions, but at least we usually avoid the worst outcomes.
Posted by: ral | March 21, 2009 at 12:13 AM
i was reluctantly watching the ncaa (reluctant b/c kentucky's out) and saw a financial investment commercial, and just start getting mad. clearly, i think i've lost it a bit.
Posted by: publius | March 21, 2009 at 12:26 AM
And given that Nick Leeson single handedly destroyed Barings bank in 1995 through derivative trades i don't doubt a few people could have caused all the trouble at AIG.
Nick Leeson did not single handedly destroy Barings.
If you allow traders to trade without adequate supervision, you will end up in much the same position as you will if you allow banks to trade without adequate regulation, and claiming that it was all the trader's fault is nonsense. Given the lax supervision, a Nick Leeson was going to come along sooner or later, and that is all on the management.
In midair I'd much rather have an experienced pilot - even the one who caused the problem
The plane is no longer in midair. The pilots are floating above the crash site with golden parachutes, laughing.
Posted by: now_what | March 21, 2009 at 12:26 AM
Johnny Canuck, I don't want pitchforks, but I continue to reject your view that this is all about a few bad apples and the rest of Wall Street is in fine shape and should go back to operating the same way as soon as we can somehow clear up this mess.
Hysteria is inappropriate and dangerous, but there must be large changes to our financial system. Otherwise if we ever manage to get the economy back it won't be long before there's another similar disaster.
Dave thinks that how much people are paid is an insignificant issue, but when people are getting enough money in one year that they could retire on it and live in luxury for the rest of their days, and when people judge their worth only by how their compensation package compares with others, it's inevitable that they will not concern themselves with whether what they're doing is good for their company or society. What reason do they have to care what happens to the company next year? Once they've got theirs, the company and the country can go to hell. And we see the results.
Posted by: KCinDC | March 21, 2009 at 12:37 AM
In my garage, I have two 15 speed Jeep mountain bikes that I bought from ToysRus for 59 dollars a piece. In my yard I have a fireplace that ts Iron that weighs 180 pounds and cost 85 dollars. All originated in China.
Combined, that is about a day of work for the middle class in America.
Even just the shipping, let alone the labor and raw material should "cost" more than that.
I think the issue is more fundamental than high salaries for Wall Street. How many bicycles did your effort today create?
Posted by: jrudkis | March 21, 2009 at 12:46 AM
i was reluctantly watching the ncaa (reluctant b/c kentucky's out) and saw a financial investment commercial, and just start getting mad. clearly, i think i've lost it a bit.
No you haven't. You're "getting it".
Much of our current problem (but I don't know how much) is that Main Street got seduced by the fable Wall Street told itself and CNBC told us.
The basic Wall Street fable is that the financial markets are not a zero-sum game where nobody can win a dollar without somebody else losing it. No, CNBC told us, financial markets "create wealth". Once you buy into the fable, the idea that The Masters of the Universe are entitled to a tiny percentage of the "wealth" they are "creating" seems eminently fair.
And why should Main Street not buy into the fable? It's hard work, creating wealth by providing goods and services to people, i.e. by working. If somebody offers to give you a handsome return on your money, in exchange for a cut of your gains, you'd be nuts not to take him up on it.
Now, here's the problem. Financial "wealth" is easy to manufacture. Bernie Madoff did it for his customers. Of course, he was an honest swindler: he was merely fooling his customers, not himself, when he printed up monthly statements showing ever-increasing balances in their accounts. The customers basked in the delusion that they had steadily-increasing claims on real goods and services, which is what steadily-rising account balances are.
The Masters of the Universe were different: they fooled themselves while fooling the rest of us. Printing up bogus statements was too far beneath their subtle minds -- probably. They needed, and by all indications still need, to believe that sufficiently clever, sufficiently complex, sufficiently esoteric financial transactions on Wall Street can create real goods and services, rather than merely redistribute such goods and services as Main Street actually produces. This self-delusion is necessary, if you want to reap Masters-of-the-Universe-sized rewards without admitting you're a crook. You have to honestly believe the monthly statements you send out to Main Street, showing an aggregate of claims on real goods and services which far exceeds the real goods and services Main Street is able to produce.
It takes an expensive education, and rare talent, to get smart enough to outwit yourself like that. Honestly deceiving yourself into believing that you're "creating wealth" by playing poker with Other People's Money is hard work. It's a valuable service, which deserves lavish rewards lightly taxed.
Main Street was happy to go along with the delusion for decades. It was, according to the monthly statements it received from Wall Street, building up its claims on future goods and services and thus looking forward to a comfortable retirement. It happily provided luxury goods and exclusive services to The Masters of the Universe, today, in return for financial "wealth" that could be converted into goods and services, tomorrow.
Main Street has now woken up from its stupor. It has come to understand that the financial "wealth" Wall Street has been creating is nothing but claims on Main Street's own future production of goods and services. And it has come to recognize that The Masters of the Universe, aside from already having lived high on the hog, have amassed tremendous financial "wealth", too -- i.e. additional claims on Main Street's future output of goods and services. If "the financial system" does not collapse, Main Street will not just have to work until it drops, it will have to devote a goodly portion of its goods and services to The Masters of the Universe and their heirs.
Main Street is waking up. Wall Street, still enchanted by its own dream, is trying hard to hit the snooze button. I don't know what CNBC is doing.
--TP
Posted by: Tony P. | March 21, 2009 at 01:02 AM
"i think the underlying issue is hubris."
Nice try, Johnny. Your fanciful analysis is fatally flawed since it does not address the source of the "hubris".
The problems we are witnessing are a direct result of stupidly shifting the tax burden from the rich to "everybody else" since 1980 and unrestrained free market folly. The skewed wealth distribution has led to a gambling mentality amongst wealth holders and nonstop financial bubbles.
When concentrated wealth seeks outlandish returns, it is like expecting and index fund to beat the market. In the face of the impossible, turning to gambling, self-delusion, or con games can reasonbly be predicted.
When finance, real estate, and insurance account for an outlandish share of national income, you are asking for disaster.
These self proclaimed Masters of The Universe should never have had such wealth and power to begin with, and the fact that they handled it badly is hardly suprising.
But really, I'd no more want to put these loons at the helm of our sinking economic ship than I would trust a wife beater for marriage advise.
Posted by: bobbyp | March 21, 2009 at 01:05 AM
"Johnny Canuck, I don't want pitchforks, but I continue to reject your view that this is all about a few bad apples and the rest of Wall Street is in fine shape and should go back to operating the same way as soon as we can somehow clear up this mess."
KCinDC, You have not understood my position. My prior comments (and my second one on this thread) have been focused on AIG and the treatment Liddy received at and after the Hearing. I heard that AIG was a typical insurance company upon which had been grafted this Financial Products unit which had done most of the damage to AIG and within the Financial Products unit it was some 20 people trading Credit Default swaps who had been allowed (by senior management) to cause the disaster. I understood that Liddy was essentially a quasi receiver- appointed by Secretary Paulsen to go in and wind up the FP unit and sell off whatever other parts of the business were necessary to repay the American taxpayer. Whatever, if anything, is left of AIG will be an insurance company. It is only within AIG that I was accepting, barring evidence to the contrary, that the seriously bad apples are no longer present at AIG.
I know nothing about the number or percentage of bad apples on Wall Street, I suspect there are quite a few. And i see the greater applicability of outrage to the banks that US trying to save, not wind up.
With respect to Wall Street, and for that matter most corporate CEOs, I think they have been paid at obscene levels over the last 25 years. Perhaps it is most outrageous in the financial sector, where many others also have reaped obscene levels of compensation for what has now been revealed to be illusory profits.
As I said in my first comment:" The best thing that may come out of this AIG bonus mess may be the examination of levels of compensation. At one time I think it was thought the ratio between the highest paid and the poorest in a society should be 20:1."
That's the long term. In the short term, the issue is how to get the banking system working again. I suspect the Swedish model would be best, but I can empathize with the reluctance to take over and run banks even for a short period of time. The howls of outrage when the "nationalized" bank does something that offends the sensibilities of the mob is daunting.
Posted by: Johnny Canuck | March 21, 2009 at 01:22 AM
BobbyP "Nice try, Johnny. Your fanciful analysis is fatally flawed since it does not address the source of the "hubris".The problems we are witnessing are a direct result of stupidly shifting the tax burden from the rich to "everybody else" since 1980 and unrestrained free market folly. The skewed wealth distribution has led to a gambling mentality amongst wealth holders and nonstop financial bubbles."
I don't know whether you only read my second comment. Hubris (exaggerated pride or self-confidence), is my diagnosis of the fatal flaw of the Wall Streeters". As I said in my first comment " The best thing that may come out of this AIG bonus mess may be the examination of levels of compensation. At one time I think it was thought the ratio between the highest paid and the poorest in a society should be 20:1."
I think the skewing of the distribution of wealth that has occurred is both morally wrong and ironically counter productive to long term economic welfare.
Posted by: Johnny Canuck | March 21, 2009 at 01:39 AM
Apologies, Johnny. I didn't even notice that that first comment was you (despite the reference to Canada) because it seemed in such contrast to the other comments from you I've seen. I think I'm understanding a bit how they fit together now.
Posted by: KCinDC | March 21, 2009 at 01:48 AM
"it was some 20 people trading Credit Default swaps who had been allowed (by senior management) to cause the disaster."
So we are mad at fools (goaded by their bosses, who, in turn, were elected by their profit motivated shareholders) who sold phony insurance guaranteeing the value of dodgy assets.
Makes sense to me. Nice to see we don't observe an agency problem here.
Posted by: bobbyp | March 21, 2009 at 02:01 AM
"I don't know whether you only read my second comment. Hubris (exaggerated pride or self-confidence), is my diagnosis of the fatal flaw of the Wall Streeters."
Hubris is not the fatal flaw. I'd bet many of us picked out of the phone book would have done the same thing if put in their place. The flaw is a rigged game.
Sometimes the mob is right in their own brutal way. After all, it was one such angry mob that instigated the American Revolution. That some of them lacked finesse and didn't wear powdered wigs I tend to overlook.
History is not very forgiving of such incredible failure as exhibited by our current financial elites, and few, if any, ever got a second chance to correct errors of this magnitude.
The idea that they, and they alone, are capable of leading us out of this economic morass is sheer folly.
Posted by: bobbyp | March 21, 2009 at 02:14 AM
"Nice to see we don't observe an agency problem here."
Bobbyp, would you explain?
Posted by: Johnny Canuck | March 21, 2009 at 02:15 AM
In a comment about this post of Political Animal, AK Liberal notes Nocera's article in NYT http://www.nytimes.com/2009/03/21/business/21nocera.html?_r=1&hp
in the article refers to treatment by congress of AIG as "economic arson", well worth reading.
Warning it may make the angrier about the bigger things that are being ignored/mishandled while everyone fulminating about the relatively small stuff
Posted by: Johnny Canuck | March 21, 2009 at 02:29 AM
One part seemed especially surreal to me: when Mark Haines said that if Congress held salaries on Wall Street to a hundred or two hundred fifty or half a million (in other words, more that quite a few Americans earn in decades) that the business of Wall Street would decamp overseas. Now, let's ignore the question of whether firms effectively owned by the US government can move to India or China: most firms move offshore in order to pay their employees less, not more.
Posted by: John Spragge | March 21, 2009 at 02:50 AM
John sprage: most firms move offshore in order to pay their employees less, not more.
Many financial transactions take place in London; not sure whether more favourable regulatory environment, but I dont think people were being paid less.
Posted by: Johnny Canuck | March 21, 2009 at 03:24 AM
Good riddance, we can only hope they leave. The business channels (and Geithner) seem to operating under the false assumption that these people are ASSETS, when all experience shows them each to be a rotting albatross around our neck, a terrible burden we should be so lucky to be rid of.
Posted by: MH | March 21, 2009 at 04:47 AM
An interesting sidelight to the otherwise inappropriate comparisons to constitutional law and pilots (both of whom are trained in narrow, highly technical, fields as opposed to world finance) is the possibility that the financial wizards knew exactly what they were doing and it was all fraud.
These men were surfers..they knew the wave (read housing boom) would crest, but leveraged themselves to their benefit during the ride.
Greed leading to fraud.
Posted by: Mudge | March 21, 2009 at 09:25 AM
All of what TP said.
Main Street has indeed woken up from its stupor -- which is why, despite President Obama's best efforts, the AIG story continues to play out.
We (the editorial "we" -- apologies in advance to those who object) couldn't get our arms around all of those billions; certainly not trillions. But everybody understands the idea behind a bonus -- work hard, make money for who you work for, and you get something extra.
You don't get a bonus just for showing up -- and losing money. Or at least that's not the norm.
And, sorry, Johnny, to disagree, but I think -- and I could be wrong -- that it took more than 20 employees to create this AIG mess. Or at least more than 20 employees knew things weren't what they supposed to be and continued on as if it was business as normal.
Posted by: bedtimeforbonzo | March 21, 2009 at 09:47 AM
Mudge "Greed leading to fraud."
or
Competitiveness leading to ever riskier behaviour.
The risk managers were trained in a "narrow, highly technical field". They had a mathematical formula. They thought it allowed them to manage risk. They were wrong.
I don't underestimate the role of greed. Unlike Enron, I doubt fraud, at least on the part of AIG. I think hubris,
I think the Titanic remains relevant analogy. I dont know much about Titanic but understand getting to New York fast was going to have an impact on the shipping lines stock. Since we are unsinkable, full speed ahead. Ignore the warnings. No fraud, just incredible hubris.
Posted by: Johnny Canuck | March 21, 2009 at 10:09 AM
d'd'd',
Do you have a substantive suggestion about how to run a balanced budget this year? Or next year? Or the year after that?
Indeed. I'll even settle for half: offer up $500 billion in real spending cuts and revenue increases. Then explain how any Republican in Congress would be able to retain their seat running a campaign on the basis of those changes.
Posted by: Michael Cain | March 21, 2009 at 10:56 AM
//d'd'd': this dem's response: Bush did it during an expansion, when one ought to be building up a surplus. And he did it in stupid, wasteful ways that produced very little tangible good: infrastructure, etc.//
You're making my point exactly. Dems are saying "We can be economic idiots too because Bush did it first!"
But why do you WANT to be economic idiots?
Posted by: d'd'd'dave | March 21, 2009 at 10:57 AM
Whammer
"Do you have a substantive suggestion about how to run a balanced budget this year? Or next year? Or the year after that?"
Yes. Do these things. They won't balance things this year but they will the following years:
Do education investing. Don't do medical reform. Don't invest in Green energy. Don't invest in climate cures. Don't do afghanistan. Don't do any more bailouts. Change all federal govt pensions (including SS) to defined contribution instead of defined benefit. Figure out what benefits are vested today under the existing plans for everyone. People have a right to receive those benefits when they are due at retirement. Going forward, the same SS tax rates apply but people get what is paid on for them. It can grow at the same rate as inflation protected treasury notes. At retirement they get an annuity based on their life expectancy and account balance. If you want to account for income differences among the population then take all SS tax collections each period and divide it equally among all participating contributers - everyone is in the same boat. Lock all budget items except interest and military at current levels until there is no more deficit. Then budget growth can be restored to match revenue growth one year in arrears. Interest on govt debt has to be whatever it is. Military spending will decrease: we are scheduled to leave iraq, let's also leave afghanistan, korea, germany, etc.
Over a period of 10 years or so we'll sprout a surplus. Use the surplus (when it comes) to do health care reform.
Posted by: d'd'd'dave | March 21, 2009 at 11:19 AM
//Indeed. I'll even settle for half: offer up $500 billion in real spending cuts and revenue increases. Then explain how any Republican in Congress would be able to retain their seat running a campaign on the basis of those changes.//
See my last comment.
How will they keep their seats? They probably wouldn't. People are not used to sober candidates. They are used to nuts who say they'll give everything and it won't cost anything.
Posted by: d'd'd'dave | March 21, 2009 at 11:25 AM
OT: Green energy
I'm looking at a photo voltaic solar system for my shopping center. Green energy is good right? Here's the deal: Various levels of government will pay 65% of the cost through various tax credit and rebate programs. Then, based on the cost of financing the remaining 35%, I get to have electricity at a cost ONLY 20% higher than if I didn't have a solar system.
What a joke! Solar is SO FAR from being able to compete on its own that it's a joke! What's wrong with you people? We CANNOT afford for the govt to subsize energy on a large scale! It is nuts.
Obama "Oh, don't worry. 95% of the people will get tax decreases. Only the rich will pay."
IT'S AN ABSOLUTE NAKED LIE.
Posted by: d'd'd'dave | March 21, 2009 at 12:12 PM
D'd'd: does your math re: solar energy assume non-renewable energy sources will cost the same in perpetuity? Have you heard of the california company deveopling solar panels made on a printing press, thereby drastically cutting the cost per watt capability?
I'm not challenging you on this, as you've ovbviously spent more time thinking about this than I have. Just checking your assumptions.
Posted by: sfHeath | March 22, 2009 at 02:34 AM
"We CANNOT afford for the govt to subsize energy on a large scale!"
Why not?
Government subsidizes a jillion things, some of which I like, a zillion things of which I do not. I'm not big on subsidizing corn, or corporations in general. What's up with this one particular subsidy that makes it a uniquely bad idea?
I don't know any form of energy that government hasn't subsidized. Coal, gas, oil, nuclear: all vastly subsidized: have you been writing screeds opposing this? Cites? If not, what are you on about?
Posted by: Gary Farber | March 22, 2009 at 02:28 PM
"Obama "Oh, don't worry. 95% of the people will get tax decreases. Only the rich will pay."
IT'S AN ABSOLUTE NAKED LIE."
That's nice that you're upset. Cites to back up your the fantasy voices in your head, please?
Posted by: Gary Farber | March 22, 2009 at 02:30 PM