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April 18, 2015

Comments

bobbyp,

I agree with you.

I was talking about shifting the financing of private business.

Making more intelligent public investments of course improves the economy.

I never did understand how returns on the stock market could be higher in the long run than the growth rate of the economy--assuming that is true in the first place.

Oh, that's easy. In fact, the method was explained nearly 100 years ago:

You buy a stock. If it goes up, you sell it and take a profit. If it doesn't go up, you don't buy it.

The "invest pension funds in the stock market" schemes use the same strategery.

If increasing Social Security benefits is the answer, where do you propose to get the money?

Good question. Does this give you any ideas?

Note that the Social Security OASDI Trust Funds hold something under $3 trillion in assets.


"It is possible, I think, if a large part of financing is debt. Debtholders take a lower return on their investment in exchange for seniority and consequent lower risk. The stockholders get a bigger cut, in exchange for assuming more risk.

Of course, total returns in the economy cannot be increased simply by converting debt to equity. "

I'll have to think about that.

I suppose what confuses me is that if the economy grows at, say, 3 percent, and the stock market grew at, say 5 percent (just pulling numbers out of the air)' given how exponential growth works wouldn' the value of all stocks eventually reach and far exceed the actual value of all assets? I'm probably thinking about this wrongly.

Donald,

Good question.

I too will think about it.

Donald,

At least part of the reason is that stock market returns are not the same thing as stock market growth. The former includes dividends, so we can think of that part of the return as being consumed rather than reinvested.

So the returns on stocks don't fully compound.

Donald,

I'd agree that is an interesting question. Now, in theory, somebody could have invested a couple of Spanish dubloons in 1500 at 5% compound interest and have them left untouched until today, thus accumulating a vast fortune.

But it did not happen. The reason is people can't keep their hands off the dough. Spending it (sooner or later) is, for the most part, why we have it.

Look, forecasting the economy 75 years out is pretty much a wild guess-depending on population growth, productivity, etc., etc. The SS trustee's reports are very, very conservative in this regard.

Yes, forecasting the economy 75 years out is hard, which is why we should make conservative assumptions, so we don't have unexpected shortfalls.

If the economy were to grow at a little over 3% a year going forward, then actually the trust fund is never exhausted.

This is a great piece of information, and I'd be interested in a citation, so I could learn more. As it stands, however, I don't know that assuming 3% GDP growth for the next 75 years is safe. The US economy has averaged 3.37% if you go back to 1930 (the earliest the BEA has numbers). But 1980-2014, the average is 2.65%. Data from:
http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&904=1930&903=1&906=a&905=2014&910=x&911=0

but painting wild eyed panic scenarios (with lots of scary 0000's, 75 years out to cut benefits today (which, by the way does absofuckinglutely nothing for future beneficiaries) is essentially dishonest.

To be clear, I provided a source based on SSA numbers. Are you calling the SSA out for 'painting wild eyed panic'?

cf the recent Mcardle piece

If you mean (http://www.bloombergview.com/articles/2015-04-07/the-left-gets-it-wrong-about-social-security ), I also wouldn't describe it as 'wild eyed'.

If you want to criticize McArdle's article on merits, I'd be willing to listen. But if you want to dismiss it because 'propaganda' that 'they want me to think', I'm not interested.

and then you quote a snippet that does precisely that.

Yes, I try to quote things that support what I say.

Secondly, yes, the folks like Pete Peterson have consistently painted the darkest of future prospects for political reasons

If you want to have a conversation with peterson, I won't stand in your way, but I'm not part of it.

Yes, I try to quote things that support what I say.

But it didn't.

If you want to criticize McArdle's article on merits, I'd be willing to listen.

I linked to a post that did exactly that. if you don't want to take it on on the merits, I really don't care.

This is a great piece of information, and I'd be interested in a citation, so I could learn more.

Here you go. I also cited the article above, but apparently you don't bother to check out my links.

But I really don't care one way or the other.

IIRC, from about ten years ago (when Dubya was pushing to privatize SS), the SS trustee's report gives three estimates of the future of the program: optimistic, pessimistic, and "middle".

And if you go back to old reports and compare the estimates to what actually happened, reality most closely matches the "optimistic" projection, if not doing even better.

Two conclusions: they really ought to recalibrate their methods; and, no sense in getting knickers in a twist NOW, because the "pessimistic" forcast for 75 years from now shows a non-catastrophic problem.

If you mean (http://www.bloombergview.com/articles/2015-04-07/the-left-gets-it-wrong-about-social-security ), I also wouldn't describe it as 'wild eyed'.

No. The link through the CEPR piece that bobbyp links to goes here.

In the above piece, McArdle characterizes the argument that the US government should honor its sovereign debt as follows:

Here's how it would actually read, stripped of the legal language: "We're raising your payroll taxes now and putting the money in a trust fund that will invest in special-purpose government bonds. When payments start to exceed taxes, we'll sell the bonds to the Treasury at par and get some cash in exchange, which will be taken out of the general fund, which is to say, taxes on those rich people we gave the money to in the 1980s.

She got the "raising your payroll taxes" part right, and she got the "putting the money in a trust fund" part right.

She apparently considers the idea that this represents any kind of binding agreement with the SS program - the holder of the debt - as some kind of left-wing fable.

She also seems to think it has something to do with the Reagan tax cuts. I don't know why.

But on the merits, McArdle is full of crap.

In the 80's, it became apparent that the SS program was not in a good position to handle the retirement of the boomers. So, the decision was taken to increase the FICA withholding such that revenue would be greater than expenses. The surplus would be invested in US federal government debt. I.e., SS would lend the money to the general federal budget, and at the appointed time the general federal budget would pay it back.

McArdle seems to see this as some kind of three card monte game, and seems to see the debt that was incurred as some kind of accounting fiction.

McArdle is eminently qualified to comment on how the government finances its various programs, because she has a BA in English and an MBA from Chicago. Oh, and she has a blog.

The general budget borrowed the money and spent it. Now, the debt is due. So, we need to pay the debt.

Is it more complicated than that?

It's a shame that we started a war that is likely to cost us a trillion and a half bucks, and that will likely cost us 6 trillion before we're done. It's a shame that we instituted tax cuts that were known *at the time they were instituted* to be guaranteed to lead us directly into huge deficits, to the point that they had to be time-limited in order to be passed, and it's a shame that the time limit was then removed.

All of that is a shame. But *we did it*.

So now everybody is screaming that "SS needs to be reformed". It doesn't need to be reformed. The money that is owed to the program needs to be repaid, and relatively minor adjustments need to be made to ensure that, a generation from now, the trust funds will not be depleted.

What this whole line of argument boils down to is:

1. To pay the debt we will probably have to raise revenue
2. We don't want to raise revenue
3. Fuck you, old timers
4. Oh, and you 25 and 40 year olds, don't even ask

If I'm mistaking the argument on any substantive point, kindly show me where.

And if you can show me *any other federal program* whose management and financial position is in as good order as that of the SS program, I'll be amazed.

In addition to the merits of her argument, I would also like to criticize McArdle for being an entitled self-important twerp, who argues in weasely bad faith, and who knows less about the topics she opines upon than the average general economics undergraduate.

Let them eat pink Himalayan salt, says she. If there is any justice, she will eat her own words someday.

It behooves me to say, and I don't believe I've ever been previously to this moment so exquisitely behooved......... Said

Russell

And How

Remember "infinite time horizon" accounting? Truly some major some major propaganda.

Scary numbers, indeed.

Oh, I think I know the "Reagan tax cut" connection.

Because that SS surplus in the 80's? Reagan counted it in the overall Federal budget, so "more money coming in? TAX CUT!!"

McArdle should not be trusted with any numbers larger than three; she has math issues.

Unfunded liabilites!

Repeat ad nauseum.

Ask the Post Office.

I've a question about the Boomers and SS, and any related or similar expenditures.

We're told we have looming financial troubles when the boomers hit and pass retirement age, due to the demographic pyramid, which is now a demographic baobab, becoming a demographic Big Top trapeze act. To illustrate it we're given scary numbers about the imbalance of receipts to payments out to 75 years.

But the demographic effect of the baby boom is a 1-2 generation thing. Right? After that I'd expect a more normal (or at least different) demographic pattern to show up.

It seems suss to me that this is never described as a difficult lean period we have to prepare for, with a predictable depth and a predictable end.

Like warning about the onset of Winter with no mention of Spring.

"I'd like to note that you seem to have problems with the direction of causality, and the nature of time.

I believe the issue is your failure to understand the concepts of "borrow" and "repay"."

One last comment before I spend the rest of the day driving:

I understand the concepts of "borrow" and "repay". I don't think they're really applicable to situations like SS. My son, Victor, is logically incapable of doing any "repaying", in as much has he's never "borrowed" anything to repay. I was in a similar situation in regards to my parents.

At best "borrowing" and "repaying" could be some sort of analogy to SS, but a bad one, as it obscures the key aspect of the situation, which is that borrowing obligates one to repay because one agrees to repay when borrowing. While nobody actually gets asked to agree to anything with SS.

Another of those "let's you and him" situations you get so often with government, where one set of people impose an obligation on a different set of people, and then folks who are a bit unclear about the nature of obligations berate the second set of people for being irate about it.

Like with declarations of war.

Brett, my sympathies go with you.

While nobody actually gets asked to agree to anything with SS.

yes, it's true: the US is not a direct democracy.

that doesn't make the decisions of the US government any less legitimate.

"I would also like to criticize McArdle for being an entitled self-important twerp, who argues in weasely bad faith"


this defines a long list of people often quoted here and elsewhere

I understand the concepts of "borrow" and "repay". I don't think they're really applicable to situations like SS.

I'm not applying them in some broad way to SS. I'm applying them, specifically, to the obligation of the government of the United States to repay, out of the general fund, the money that it has borrowed from the SS trust funds.

Regarding most of the rest of your comment:

You seem, over and over again, to object to the idea that you, or anyone, should be obliged to do something that you, personally, have not explicitly agreed to do. And, that you should be so obliged, by virtue of having been born, without having consented to it, into a society that imposes those obligations.

You don't need anyone to tell you this, but we don't live in a Lockean state of nature. Locke didn't live in a Lockean state of nature, and didn't suggest or recommend that people live as if they did.

That ideal - where all men are free "to order their actions, and dispose of their possessions and persons, as they think fit" - is just that - an ideal. It's a philosophical artifice, not a historical account of any actual human experience.

In the actual world we all live in, we *are all obliged* to each other and to the society we live in, in thousands of ways, most of which we have not, personally, signed up for. Many of which we, personally, may object to and even find obnoxious or illegitimate.

We can do whatever is available to us to try to remove the obligations that we find objectionable, but we won't always prevail. And, the obligations that seem most sensible to us, will probably be obnoxious to somebody else.

C'est la vie.

It's got nothing to do with "not understanding the nature of obligations". On the contrary.

And to the degree that your various points boil down to "if it's coerced it's not legitimate", I personally don't find them persuasive. To me, it's like objecting to being subject to the law of gravity.

Human beings are social creatures. They live in societies. Societies impose obligations on the people who participate in them.

I have at least 10,000 years of human history to point to in making those statements. Not speculative notional ideals, but the actual lived experience of the entire recorded history of the human race.

We do it that way, because it's in our nature to do it that way. Living in societies, with all of their entanglements and mutual obligations, *is* our state of nature, and apparently has always been.

Safe travels, I'm sorry about your sister.

this defines a long list of people often quoted here and elsewhere

Including Megan McArdle.

Would you like some pink Himalayan salt with that? :)

But it didn't.

I said: No, but it does suggest that the money required to continue SS in its current form come at the expense of other costs:

And then I quoted a passage that suggests the money required to continue SS in its current form will come at the expense of other costs.

Here you go. I also cited the article above, but apparently you don't bother to check out my links.

Thanks, I appreciate the link. I missed the link to prospect.org. Going back, I can't seem to find it, but that's pretty irrelevant.

About the prospect.org analysis, I think its good, but I think it overestimates GDP growth.

Over the last 3 decades and change, we've average less then 3, as I mentioned above. Further, the prospect.org analysis only discusses GDP growth, while the SSA analysis is based on a number of factors:

The low cost alter­native includes a higher ultimate total fertility rate, slower improvement in mortality, a higher real-wage differential, and lower unemployment. The high cost alternative, in contrast, includes a lower ultimate total fertility rate, more rapid declines in mortality, a lower real-wage differential, and higher unemployment. These alternatives are not intended to suggest that all param­eters would be likely to differ from the intermediate values in the same direc­tion, but are intended to illustrate the effect of scenarios that are, on balance, very favorable or unfavorable for the program’s financial status.

http://www.socialsecurity.gov/OACT/TR/TR08/II_project.html#105057

So, I think the SSA is probably correct to say:

The actual outcome for future costs is unlikely to be as extreme as either of the out­comes portrayed by the low and high cost projections.

I linked to a post that did exactly that. if you don't want to take it on on the merits, I really don't care.

Fine. The article you linked (http://www.cepr.net/index.php/blogs/beat-the-press/the-social-security-trust-fund-one-more-time ) pretty much had this to say:

By the second view there is no reason to worry about Social Security's finances because the premise is that it doesn't have its own finances. Hey, there's just one government, who cares which pocket the money comes out of? In this view it makes no more sense to worry about Social Security's finances than it does to worry about the finances of the defense or state departments. It's all part of the government.

Which is pretty much McArdles point in the article they cited (http://www.bloombergview.com/articles/2015-04-10/social-security-and-the-ghost-of-ronald-reagan ):

Let's change the system, with some combination of phased-in taxes and adjustments to benefit levels, so that no one ever has to deal with a massive benefit cut. And let's make it actuarially stable over the long term, so that young workers know what is coming and can plan their retirements accordingly. To us, the trust fund is irrelevant; what matters is deciding how much money is going to go into the government, how much is going to come out, and keeping those amounts roughly in balance.

So, as far as contradicting her on the merits, it leaves a lot to be desired.

russell:

No. The link through the CEPR piece that bobbyp links to goes here.

Thanks. I linked the wrong article McArdle article.

She apparently considers the idea that this represents any kind of binding agreement with the SS program - the holder of the debt - as some kind of left-wing fable.

I'd describe it more as she thinks the money has to come from somewhere in the government, and is interested in how to make that work.

She also seems to think it has something to do with the Reagan tax cuts. I don't know why.

It's her characterizing a 'left-wing' argument (there was some kind of deal involving tax cuts and SS). As a rhetorical technique, its something I have little patience for.

and seems to see the debt that was incurred as some kind of accounting fiction.

I think her point is that debt within a consolidated entity (the government) is kind of a meaningless red herring to the SS discussion. Either the government has the money, prints the money, taxes the money, or increases the deficit. It has to come from somewhere.

All of that is a shame. But *we did it*.

I would agree with all that.

The money that is owed to the program needs to be repaid, and relatively minor adjustments need to be made to ensure that, a generation from now, the trust funds will not be depleted.

Where I think you and I part ways is 'relatively minor adjustments'. Increasing taxes by 12.4% on higher incomes is not 'relatively minor' in my mind (it may be necessary, but its not minor). And means-testing, which I think is actually a good idea, breaks the concept of paying people back for what they put in. Which various people across the political spectrum don't like. So again, I think 'minor' is a misnomer.

What this whole line of argument boils down to is: [...]
3. Fuck you, old timers
4. Oh, and you 25 and 40 year olds, don't even ask

I'll quote her again:

Let's change the system, with some combination of phased-in taxes and adjustments to benefit levels, so that no one ever has to deal with a massive benefit cut. And let's make it actuarially stable over the long term, so that young workers know what is coming and can plan their retirements accordingly. To us, the trust fund is irrelevant; what matters is deciding how much money is going to go into the government, how much is going to come out, and keeping those amounts roughly in balance.

Which is pretty much not your 3 and 4.

I would also like to criticize McArdle for being an entitled self-important twerp

I wouldn't be as harsh, but yes, I don't like her writing very much either.

And if you can show me *any other federal program* whose management and financial position is in as good order as that of the SS program, I'll be amazed.

I can't, but that has very little to do with how to ensure SS is around a generation from now.

My son, Victor, is logically incapable of doing any "repaying", in as much has he's never "borrowed" anything to repay. I was in a similar situation in regards to my parents.

Think of it this way. You borrow money. When your children inherit, they inherit your liabilities, as well as your assets. So they then have a debt to repay for monies that they did not personally borrow.

Something similar applies, be it noted, to any government debt -- the folks who decided to borrow it may well not be the folks who repay it. Move to a city with substantial pension liabilities, and your tax rates will be determined, in part, by the need to pay those pensions. Even if, that pension scheme is no longer in place for current empoyees.

P.S. Godspeed, Brett.

It has to come from somewhere.

If they want to look at it this way, then it behooves the crisis mongers to remain consistent. #1 on the list is to admit that they view social security taxes as just another tax, just like income taxes, and that the revenue from that tax is not dedicated to any particular program but is just going into the general fund.

Then the story becomes this: Back in '86 the working population took on a big tax hike to "save" a particular program, but it was all a ruse to just generate more revenue and give tax relief to the well off.

You may now commence to lay out a "solution" to the problem as macardel has defined it....the federal government has a spending problem. Thus you cannot claim Social Security is "going broke" because it is just one of many government programs. You have to argue that the government is "going broke".

Also, as pointed out by Dean Baker, this whole problem boils down to something like 1-2% of GNP 75 years from now.

Hardly a crisis.

The "FU old folks" part is where she describes the obligations of the SS program as follows:

It is trivially true that under current law, you have a right to collect benefits

The red herring is the weird BS about the Reagan tax cuts.

Basically her whole argument, root and branch, is mendacious. It's nice that she concludes with a call for everyone to sensibly sit around the table and work it all out, but the piece as a whole is garbage.

Start with this:

First of all, the idea that workers somehow explicitly cut a deal to pay more payroll taxes now, give the money to rich people, and then get it back later in the form of higher income taxes doesn't really hang together.

What is the "give the money to rich people" and "get back later in the form of higher income taxes" stuff about? It's just dishonest BS. It doesn't hang together because it's something she made up, specifically to not hang together.

In real life, the deal was: as of the early 80's, there wasn't going to be enough to cover boomer retirement. So, we deliberately paid in more than was needed to fund the program, for about 30 years, to build up a cushion that would deal with *the boomer retirement*.

Full stop.

Not secure the program in perpetuity. Not as part of some quid pro quo with Scrooge McDuck.

Just a simple, sensible strategy to deal with a forseeable shortfall in revenue.

It's lovely that McArdle arrives at a call for us all to sit around the table and work it all out, but she's a liar. She is not an honest person.

Regarding expanding SS benefits, yes, it will cost money, and yes, if we want to do it, we will have to raise revenue to pay for it.

If that's a non-starter, we won't do it, and there are going to be a lot of really freaking poor old people for the next 20 or so years.

It's not like the problem is going to go away, and it's not like it isn't going to cost us a great big pile of public money either way. And it's not like there haven't been 30 years of bad public policy decisions that contributed to the situation in the first place.

If you thought I was just being hyperbolic when I said "FU old folks", wait and see how the public conversation plays out.

why is it that none of these people who wail and moan and cry about SS rarely express concern over the $16,000/sec we spend at the DoD ?

remove either "none of" or "rarely", as you prefer.

Increasing taxes by 12.4% on higher incomes is not 'relatively minor' in my mind

Well, neither was the big tax hike back in the 80's on working wages to "save" the program. But apparently, rolling this back is somehow "off the table"?

Why?

Let's start here: Roll back the Reagan and Bush tax cuts.

Sorry, again into the breach on McArdle.

Check this out:

As far as I can tell, the idea of this vague implied contract was first bandied about during the proposed Social Security reforms under George W. Bush some 20 years later, but I could just be missing earlier references.

And she immediately follows that by asserting that, based on her hazy "as far as I can tell" brain fart that the "implied contract", which she misrepresents in the first place, didn't emerge in the public conversation until Bush 43, it should therefore be considered to have no force whatsoever.

Because the people who agreed to the deal in the 80's never thought about it in those terms. You know, the terms she made up.

What a lazy-ass sorry excuse for a public commentator she is.

Want to make a statement of fact, and then base an argument on it?

GO LOOK IT UP AND SEE IF IT'S TRUE. You've got the Bloomberg gig, go earn your freaking money. Look it up, you lazy twit.

The people who comment here do a better job, day in and day out, of making clean, honest arguments, then McArdle has ever done in her life.

She's a lazy, dishonest hack.

It's lovely that McArdle arrives at a call for us all to sit around the table and work it all out, but she's a liar. She is not an honest person.

Russell, I think you do the lady an injustice. She is basically a libertarian (albeit perhaps not quite so dogmatic as Brett). So, given her philosophical perspective, her arguments may be no more dishonest than someone who believes in the Bible being literally true arguing against evolution.

That is, she may be wrong and grasping at straws. But to be dishonest, and a liar, she would have to realize that what she says is incorrect. And the evidence suggest that this is not the case.

Russell, I think you do the lady an injustice.

No, I really don't think that I do.

See my 11:09 and explain how the argument of hers that I refer to is the product of an attempt at honest, if mistaken, conversation.

bobbyp:

Thus you cannot claim Social Security is "going broke" because it is just one of many government programs. You have to argue that the government is "going broke".

Which is pretty much what McArdle said:

what matters is deciding how much money is going to go into the government, how much is going to come out, and keeping those amounts roughly in balance.

I think that is pretty much the way we need to think about it. If its a commitment, we need to figure out a way to pay for it.

Also, as pointed out by Dean Baker, this whole problem boils down to something like 1-2% of GNP 75 years from now.

Using the intermediate assumptions, which might be an over or under estimate. And, as pointed out by Baker That's not trivial

And it is better to address those problems early on. Or, in the words of the SSA: Therefore, legislative action is needed as soon as possible to address the DI program’s financial imbalance.

http://www.ssa.gov/oact/tr/2014/II_A_highlights.html

Which also outlines possible solutions:

For the combined OASI and DI Trust Funds to remain solvent throughout the 75-year projection period: (1) revenues would have to increase by an amount equivalent to an immediate and permanent payroll tax rate increase of 2.83 percentage points3 (from its current level of 12.40 percent to 15.23 percent; a relative increase of 22.8 percent); (2) scheduled benefits during the period would have to be reduced by an amount equivalent to an immediate and permanent reduction of 17.4 percent applied to all current and future beneficiaries, or 20.8 percent if the reductions were applied only to those who become initially eligible for benefits in 2014 or later; or (3) some combination of these approaches would have to be adopted.

Move to a city with substantial pension liabilities, and your tax rates will be determined, in part, by the need to pay those pensions.

I think the net trend is to move from those cities.

The fact of the matter is that McArdle's argument is not just a stretch. It is self-defeating.

Here is what she says about the alleged contract.

"As a fallback, the trust funders say that the bonds convey some sort of moral obligation. We made a deal with people, they say: higher taxes in the 1980s and onward in exchange for promised benefits. Because the program was overfunded in the early years, a significant chunk of those (regressive) payroll taxes helped fund Ronald Reagan's tax cuts for the wealthy. Now that it's their turn to pay higher taxes to fund Social Security, they're trying to welsh."

I'm not sure how the whole business of the Reagan tax cuts, etc. got pulled in here. It's my understanding that the deal related totally to Social Security. IOW, there was an agrement to increase payroll taxes in exchange for securing the promised benefits. Workers pay more now, so the government will be able to pay the benefits later. That's the deal. Nothing about Reagan tax cuts. Besides, all this is saying is that some of the borrowing needed to fund the cuts came from workers. If that hadn't happened it would have come from elsewhere. The payroll tax increase did not, was not intended to, finance the cuts.

Now, oddly enough, McArdle agrees with this.

"First of all, the idea that workers somehow explicitly cut a deal to pay more payroll taxes now, give the money to rich people, and then get it back later in the form of higher income taxes doesn't really hang together. The timeline is wrong, for one thing; the first round of Reagan tax cuts preceded the Social Security deal by several years. Also, since "the rich" in 1983 and "the rich" today are not the same group, it's hard to see how the former could make any sort of agreement binding on the latter."

So she understands the point. But then she makes up - there is no other way to describe it - a hypothetical deal that now should be altered. And of course she describes it in a way that leads inevitably to her preferred outcome, as she speaks airily of "benefit adjustments."

So no. It's not a persuasive argument.

Just a simple, sensible strategy to deal with a forseeable shortfall in revenue.

Which it was. And now we need another simple sensible strategy to deal with a foreseeable shortfall.

She's a lazy, dishonest hack.

Again, I wouldn't be as harsh, but, I don't disagree with you regarding her in general.

The crisis mongers argue that the system under current law will "go broke" at some point in the future, leaving us with trillions of "unfunded liabilities", then they turn around and argue that the trust fund is just a "fiction".

This is the heart of the dishonesty.

That, and ALWAYS the solution is to "reform entitlements", and keep both the '86 payroll tax hike and the Bush tax cuts in place.

They are trying to have it both ways, and if they don't know this they are either ignorant of the implications of their own arguments or they are disingenuous liars.

Given the fact this has been an open sore since the day of discussions about "lock boxes" in 2000, I can only conclude the latter applies.

I think the net trend is to move from those cities. [which have large pension liabilities]

Quite possibly. But it doesn't change the argument that, legally and logically, it is entirely possible to acquire a debt which you did not personally run up. And that's all I was addressing.

Although I would also not that the reasons that people are leaving those cities is probably not this. Most people do not even think to check that particular arcane point when making home purchase decisions.

One more thing.

McArdle mocks the idea of a trust fund because there is no legally enforceable obligation that Congress cannot change.

Well, OK.

But the entire structure of the US retirement system is subject to the same caveat. You think you are accruing tax-deferred savings in your IRA? Don't be ridiculous. Congress can slap a tax on that IRA any time it feels like it, or any time there is a fiscal problem.

There is more money in 401(k)'s than in the OASDI trust funds. There is also more money in IRA's. Cite.


"Most people do not even think to check that particular arcane point when making home purchase decisions."

True, even the municipal fireman on a generous, bur deserved pension from Philly or Pittsburgh or Chicago who retires to Florida or Texas or Arizona for the better climate and votes Republican to gut everyone elses' pensions and Social Security rarely gives this much thought.

I don't have enough of an opinion of McArdle for it to color my reading of her Bloomberg piece, so I'll just say it's possible she's implying things I wouldn't pick up on, but for having read more of her stuff and it having left a lasting impression on me.

With that, it's hard to tell when she's discussing her opinions or characterizations of things or describing those of others, but I don't take much issue with the idea that the trust fund is a fiction of sorts. I mean, it's real, because that's how things were set up, and the bonds held in the trust exist, but that's also what makes it a fiction of sorts, because there's no reason it had to be set up that way.

I remember having this discussion years ago when Hilzoy was still here, regarding why Social Security has its own designated revenue stream and trust fund, and why its outlays are evaluated specifically against them, whereas most other government programs cost what they do, in aggregate, usually in excess of federal revenue.

Perhaps it protects SS from the whims of congress in the exercise of its budgetary authority. But then I wonder if the political ramifications of screwing around with SS aren't protection enough.

In any case, regardless of what remains in the trust, it comes down to a question of whether or not paying SS benefits at whatever level is a worthwhile expenditure of federal dollars, like anything else the federal government spends money on. I mean, is keeping old and/or sick people out of abject poverty while also more or less directly injecting demand into the economy (as directed by private, non-government actors according to their individual preferences, no less! - the market!) any less worthwhile than, say, building destructive and deadly flying machines?

In any case, regardless of what remains in the trust, it comes down to a question of whether or not paying SS benefits at whatever level is a worthwhile expenditure of federal dollars, like anything else the federal government spends money on.

Yes, exactly. And further, as SS payments are in theory something that people have to plan on having/not having a couple of decades in advance, it behooves us to look ahead and ensure that the government spending (and SS specifically) is sustainable.

Another aspect of the McArdle piece is that it should be uncontroversial that payroll taxes for SS are regressive, with a marginal rate of 0% for all income above whatever the number is these days, and a straight percentage for income below that.

I think the issue regarding the Regan tax cuts is that the same president reduced income taxes, mostly to the benefit of wealthier people, and raised SS payroll taxes on everyone, with the effects being most acute for people with lower incomes.

So, while someone would have bought the bonds issued to cover tax shortfalls, made larger because of the income-tax cuts, the SS surplus realized by increasing SS payroll taxes made some of them intra-governmental debt when they otherwise wouldn't have been.

The extrapolations about "deals" beyond those points of fact are just stylized rhetoric.

In any case, regardless of what remains in the trust, it comes down to a question of whether or not paying SS benefits at whatever level is a worthwhile expenditure of federal dollars, like anything else the federal government spends money on.

I fundamentally disagree with this, particularly in the context that we're talking about.

Basically what it comes down to is yes, we all agreed to put money aside, yes we all agreed to invest the money in federal bonds to be redeemed 30 or so years hence (i.e., now), but no, now we don't want to pay them back.

That's a big "screw you" to all of the people who signed on to pay at an increased rate, many of them for their entire working lives.

It's bad faith. And to the degree that it's based on a claim that SS is "unsustainable" and some kind of fiscal disaster waiting the happen, it's a lie.

Of all of the programs the feds run, SS is probably the most sustainable and is certainly one of the best run.

We just don't want to pay our debts.

We spent the money, now we have to pay it back. You can call it an "accounting trick" if you like, but that's what we're talking about.

What's funny to me is that it's always people on the left side of the aisle who are accused of being fiscally irresponsible.

it behooves us to look ahead and ensure that the government spending (and SS specifically) is sustainable.

If I understand correctly, the CBO says that raising the SS tax rate about 2.5% on the current tax base - no change to the cap - makes the program sustainable out 75 years.

Which basically means in perpetuity, because that's as far out as they plan.

If that's too much, raise the cap and mitigate it somewhat. Or, make some adjustment to benefits, phased in over, say, 20 years, and mitigate it that way.

Or, if we want to get really crazy, make other policy changes to increase the rate of growth of the economy.

But no matter how you slice it, the "looming disaster" facing SS is small beer.

Unless I'm really missing something.

The debate about SS is really about 1,000 things other than SS.

russell:

If I understand correctly, the CBO says that raising the SS tax rate about 2.5% on the current tax base - no change to the cap - makes the program sustainable out 75 years.

The SSA, which I linked and quoted above, puts it at 2.83% (a relative increase of 22.8%). I think that's doable, but the key aspect of this is that its across the entire tax base: it will hit low and mid income americans. And those tax increases will make it harder to find funding for the 'discretionary' parts of the budget. Things like education and infrastructure that are essential to positioning the US for continued growth. Which may be acceptable, but its something that should be discussed publicly, not dismissed as 'minor.'

Or, make some adjustment to benefits, phased in over, say, 20 years, and mitigate it that way.

Yes, I think we need to make some adjustments to benefits going forward. Likely in combination with some increase in taxes in order to guarantee the program.

Look, the SSA puts cuts, if we only do them on people who are becoming eligible now, at 20.8% to maintain solvency. That's a big cut. If that's phased in over 20 years, its going to be even bigger.

And if we kick the can down the road on those tax increases and cuts, they are going to be steeper and deeper, respectively.

Or, if we want to get really crazy, make other policy changes to increase the rate of growth of the economy.

Seriously, you linked above a historical rate of about 2% growth per capita. If you think there's a way to exceed that on a continuing basis, I'm all ears.

But no matter how you slice it, the "looming disaster" facing SS is small beer.

I'm not slicing any "looming disaster". I don't buy into panics. I do, however, buy into reasonable projections, like the ones put together by the SSA, which predicts substantial budgetary shortfalls.

We can wish them away with 3% growth in perpetuity, but bluntly, that's just kicking the can down the road and making the situation worse when it is dealt with.

Basically what it comes down to is yes, we all agreed to put money aside, yes we all agreed to invest the money in federal bonds to be redeemed 30 or so years hence (i.e., now), but no, now we don't want to pay them back.

What what comes down to? Not what I wrote. My point is that people should get benefits even if the trust fund were to be depleted. My point is that it would asinine and stupid (both! for emphasis!) not to pay benefits, whether the bonds existed or not.

Maybe I'm just not sufficiently hip to whatever (right-wing?) meme is out there to word things in a way that doesn't look like the meme to people who are sufficiently hip to it ... or something.

I'm not entirely sure what we're not agreeing about.

"And real real rates, which take into account the fact that the government is lying about the rate of inflation. (As anybody who buys groceries is aware.) "


This is a lie; see Krugman's columns for more details, and links to other research. For example, the Billion Prices project agrees well with the official inflation rate.

it will hit low and mid income americans.

OK, raise the cap instead. Or, some of each.

And those tax increases will make it harder to find funding for the 'discretionary' parts of the budget. Things like education and infrastructure that are essential to positioning the US for continued growth.

My personal point of view is that we should rescind the Bush tax cuts and pay for all of the above.

I'm not trying to dodge your point, I'm just trying to address it appropriately.

We are short in the general fund because - amazingly enough - the tax cuts that were predicted to create huge deficits, actually did create huge deficits.

Fix that, and leave SS alone.

Which may be acceptable, but its something that should be discussed publicly, not dismissed as 'minor.'

Again, my personal point of view is that problems that can be solved by low-single-digit increases in tax rates are not large problems.

If taxes only ever went up monotonically, I'd feel otherwise. They don't.

the SSA puts cuts, if we only do them on people who are becoming eligible now, at 20.8% to maintain solvency.

My understanding is that, assuming the trust fund notes are paid, the retirement program is solvent until 2036.

The disability program, not so, it's going to run out of money next year. So, yikes, for the disability fund.

But broad 20% cuts would, I think, be a matter of the general fund failing to repay the SS bonds.

Seriously, you linked above a historical rate of about 2% growth per capita. If you think there's a way to exceed that on a continuing basis, I'm all ears.

Put more of the 2% growth in the pockets of the folks who are actually paying the SS tax. That will result in a greater than 2% increase in the revenue to SS.

I'm not entirely sure what we're not agreeing about.

Yeah, it's hard to keep track of it all.

I just took exception to thompson's citing your comment to the effect of it all being federal money.

It is all federal money, I just object to imposing cuts on the SS program to backstop fiscal irresponsibility in the management of the general fund.

Find something else to cut. Quit fighting wars off budget via "supplementals", for starters.

Look, the SSA puts cuts, if we only do them on people who are becoming eligible now, at 20.8% to maintain solvency.

Look, are you arguing in the context of the (a.)actual current law; or (b.) in the context that Social Security is just another federal program like any other program?

Please tell us which.

If (a.) Raising the cap and increasing only slightly the wage tax will solve this so called problem in the context of the actual law in place.
If (b.) The program's 'solvency' is not an issue at all. For starters, it makes no sense to deem a federal program "insolvent". Do we undertake projections of future defense spending needs and then throw our hands in the air and declare the Department insolvent? Why, no, we do not.

In fact, given the current slack condition of the economy, we should be increasing government spending to promote economic growth now and going forward. We should be discussing how much to raise benefits, not how much to cut them.

So pick one. Then we can have a discussion.

But we cannot have one if you continually go back and forth claiming at one point that the program is "insolvent" and then turn around and whine that "the money has to come from somewhere".

Again, that is the essential dishonesty of the crisis mongers' argument.

Funny how conservatives whine about the poors not having "skin in the game". Yet most poors work. Most poors thus contribute 12+ per cent (yes, yes, I know that includes the employer's "contribution") of their wages to the federal government. For decades this was more than was needed to sustain the program.

The rest of it sustained the General Fund.

Now a reasonable person would say that it appears the General Fund has a sustainability problem, not Social Security.

But the Megan Mcardles of the world are not reasonable.

russell:

OK, raise the cap instead. Or, some of each.

The cap, as mentioned earlier, is not sufficient, especially if it stays coupled to benefit payouts. Decoupling the increased taxation from benefits, and/or means-testing, I think is a very practical way of increasing solvency. But there are political objections, etc.

I think some of each is a good way to go.

I'm not trying to dodge your point, I'm just trying to address it appropriately.

I appreciate that, in both senses of the word. So, I probably want an overall government budget than is smaller than you have in mind. However, in the near term, its unlikely our spending is going to come in line with my vision for America, so I'll settle for some form of increased revenues and fight the spending battle another day.

In that regard, I think the bush tax cuts are a fine target. I'd be interested to see numbers for what you are talking about...how much excess revenues would be raised, etc, and how that would compare to our current deficit. I don't think they are sufficient to eliminate our deficit or start paying down our debt, let alone infrastructure/education/etc, but again, I'd be interested in numbers regarding what you were thinking.

I'd also, as I said in a previous thread, be very interested in reforming our loophole rich tax code.

Again, my personal point of view is that problems that can be solved by low-single-digit increases in tax rates are not large problems.

Respectfully, 2.83% is over $1000 for someone making ~40K a year. That's an appreciable chunk of their income.

Further, it's low-single percentages now, but the longer its unaddressed, the higher those numbers will be.

But broad 20% cuts would, I think, be a matter of the general fund failing to repay the SS bonds.

My understanding, based on the SSA report (highlights here: http://www.ssa.gov/oact/tr/2014/II_A_highlights.html ), is that is the Trust Fund, which is held in special issue U.S. Treasury securities, would need to institute those, or similar cuts, or run out of money.

If there is part of the SSA analysis you find insufficient, it would be helpful to me if you could point out where, and provide some numbers.

Further, it doesn't really matter to me whether the money is 'paid back' by the general fund or not. It matters that it is a liability that we either need to reduce or find a way to fund.

I just took exception to thompson's citing your comment to the effect of it all being federal money.

It is all federal money

Great. So you took exception to me saying it is all federal money, but its a point you seem to agree on?

Find something else to cut. Quit fighting wars off budget via "supplementals", for starters.

Bluntly, I'm not a war hawk. I have, on this board, called for reductions in defense spending and overseas engagements. And if I haven't been obvious enough about previously, I say that unequivocally now.

Because honestly, it's a little tiring to be lumped into the 'fighting wars off budget via "supplementals"' camp.

I can't go back in time and make Iraq not happen. It happened, and its impact on our budget is only one of the many damaging aspects of its legacy. However, its money we've spent, and we can't get it back. If you want me to stipulate that it is part of the problem (http://www.gao.gov/financial_pdfs/citizensguide2008.pdf ) we have going forward, consider it stipulated.

If you want to take exception to me, I don't mind. Take it to something I said, rather than tying me to a budgetary position I do not hold.

Fair enough, Thompson.

Still it would be a touch easier to listen to others - the Petersons and McArdles of the world - start their arguments by admitting that the whole Iraq business was a giant f---up on many levels, including the financial, and suggest that without it the whole "entitlements problem" would be easy to deal with.

Perhaps someone can explain to me why the link to payout benefits should be linked to the amount contributed beyond the current maximum. It isn't at all clear that those making more than the current cap are going to be reduced to poverty in their old age. Or even to a painful constraint on their lifestyle. So just continue to pay at the current maximum rate, while eliminating the cap onwhat earnings are taxed.

The purpose of Social Security is not, after all, to allow everyone to continue living at their accustomed level. It is to allow everyone to avoid abject poverty in their old age.

I think some of each is a good way to go.

Yes, that's all I was trying to say with the "raise the cap" comment.

If 2.8% on the current base is not acceptable, especially because of its regressive nature, we could, potentially, raise the cap some to spread it over a larger base.

I agree that the best way to thread the needle will probably be some combination of things.

So, I probably want an overall government budget than is smaller than you have in mind.

I'm sure I'd be fine with a smaller overall government budget as well. Who likes to pay taxes?

My point is that, due to imprudent choices, we owe a lot of money. So, for some period of time, we should increase revenue, until we're closer to where we want to be in terms of debt.

I'm not freaked out by the current debt levels, but I think it would be helpful from a "keep it honest" point of view to consider funding operations from revenue rather than further borrowing.

If we're even having a conversation like "which should we neglect, infrastructure or fulfilling current legal obligations to retirees?", then we're not being honest about whether our revenues match what we actually want government to do.

The "we" in that is rhetorical, not directed at you.

I generally object to arguments by analogy, but in case it helps clarify - in my household budget, I treat money I set aside for retirement differently than money I budget for home repairs, and from money I budget to pay the mortgage, and from money I budget to buy new clothes, etc etc etc.

It's not all fungible.

I'm sure you get all of this.

So you took exception to me saying it is all federal money, but its a point you seem to agree on?

I guess the point I'm struggling to make here is that *all federal money is not the same*.

If you set up a separate funding regime for certain programs, keep it off the general budget, make specific provisions to address expected shortfalls *in those programs*, etc., then it's not the same as the other federal money.

From a totally macro point of view, it all comes out of some kind of taxes, but from point of view of the obligations and commitments that were made with regard to the different programs and funding streams, IMO it's incorrect to see it all as one big fungible bucket.

it's a little tiring to be lumped into the 'fighting wars off budget via "supplementals"' camp.

I'm absolutely not doing that, apologies if that wasn't clear.

My comment about wars being fought via supplementals was basically just me citing what I see as an example of fiscal imprudence. More than imprudence, a kind of recklessness.

I would hardly see you as supporting anything like that, I'm sorry to have not made that clear.

Yes, that money has been spent, and spent poorly. If we need to tighten our belts to make up for it, I'm fine with that. I don't want it coming out of SS, because it's not a problem that SS caused.

Cost of Bush Tax Cuts

Respectfully, 2.83% is over $1000 for someone making ~40K a year. That's an appreciable chunk of their income.

A rejoinder.

What's really driving the projected long term Social Security shortfall?

You may be surprised.

bymotov:

Still it would be a touch easier to listen to others - the Petersons and McArdles of the world

I get that, I really do. Everything is connected, and people who have a stance A on subject B often have a contradictory stance X on subject Y. It's frustrating as all get out.

If it helps, I'll say it: Iraq was a huge f*** up. In terms of lives, in terms of policy, and in terms of budget. I can't change any of that, and I don't think saying that changes much going forward. It's one of many choices we've made and have to deal with the legacy of.

Two budgetary wrongs don't make a right.

russell:

I really have no disagreements with your post. And agree with this strongly:

then we're not being honest about whether our revenues match what we actually want government to do.

That really is a point I've been thinking but haven't artfully put into words.

From a totally macro point of view, it all comes out of some kind of taxes, but from point of view of the obligations and commitments that were made with regard to the different programs and funding streams, IMO it's incorrect to see it all as one big fungible bucket.

Yes, granted. And if there was really one point I was making with the totally macro view, it would be this:

The money has to come from somewhere. If its increased taxes, its increased taxes, and that should be stated openly and publicly, so the public can have an informed debate.


I'm absolutely not doing that, apologies if that wasn't clear.

No problem. I misread your comment, but I appreciate the clarification.

More than imprudence, a kind of recklessness.

No argument here.

If we need to tighten our belts to make up for it, I'm fine with that. I don't want it coming out of SS, because it's not a problem that SS caused.

If your stance is that SS is unchanged, but we will tap X, Y, Z sources of revenue and tighten spending in A, B, C ways, I have no complaints. Assuming the math adds up and it doesn't rely on unrealistic expectations about the future.

I do, however, want math to be part of the public discussion. FWIW, I've done my best to provide links to actuarial projections and analysis of what some of those numbers might look like.

I have a question for liberals, moderates, and conservatives:

Do you have parents living? If they could not survive without the SS benefit they're receiving, would you let them starve?

I'm guessing: no, you would not let them starve. You would dig into your own pocket to support them.

Now consider: the money you'd spend on your retired parents would come out of the same pocket as you pay taxes from.

On the national scale, what retirees get to consume, workers have to produce. Whether that "transfer" is done by government mediation (i.e. taxation), private contract (e.g. dividends and interest), or family obligation (i.e. paying your own parents' bills) makes no difference: workers don't get to consume some of what they produce.

You can argue that retirees live too high on the hog if you like -- that they get to consume too much. But unless you're willing to make that argument explicitly, it's almost pointless to obsess about whether the cost is borne by The Government or by The Nation. A solvent Government of an insolvent Nation is no better than an insolvent Government of a solvent Nation, except to ideologues.

--TP

The way SS works is that I would have to give money to my parents regardless of whether they needed it or not or what my own financial situation is.

Charles,

That was part of the political genius of the program. If you parents don't need it, they can always gift it back to you.

Regards,

If the SS trust fund is just "an accounting fiction", then what is an IRA entirely invested in t-bills?

(Rhetorical question, I know.)

Do you have parents living? If they could not survive without the SS benefit they're receiving, would you let them starve?

All hands in the generation ahead of me are now gone.

Most of them basically lived independently up until within a week or two of their passing. The exception was my mother, who went by way of Parkinson's, which truly did suck.

When she got to where she couldn't do for herself, my sister took her in.

At some point, that didn't work anymore due to the kind of direct care that was required by the disease, and she went to a residential care facility.

Among the people I know who are approximately of my age, a very generous handful participate in caring for their folks, in some way shape or form. It's not uncommon, even in this day and age.

If the SS trust fund is just "an accounting fiction", then what is an IRA entirely invested in t-bills?

T-bills owned by financial institutions and private investors are different than SS T-bills.

The difference is that SS T-bills have moral hazard cooties.

You may be surprised.

I actually guessed correctly what that article was going to say. When you have a regressive tax funding a program, while wages have stagnated with less than full employment, and an ever-larger share of national income is going to an ever-smaller, ever-richer portion of the population, what would you expect to happen to that program's revenue?

Snarki, my answer would be that those t-bills wouldn't be debt you owed to yourself denominated in a currency you could create out of thin air, so no. That's not to say that the t-bills in the SS fund aren't real and aren't a form of money, just that SS benefits could be paid whether those bonds were there or not, like anything else the federal government finds a way to pay for when it deems it important enough.

If the SS trust fund is just "an accounting fiction", then what is an IRA entirely invested in t-bills?

A fictional investment with (appropriately) extremely low returns?

Barry,

"And real real rates, which take into account the fact that the government is lying about the rate of inflation. (As anybody who buys groceries is aware.) "


This is a lie; see Krugman's columns for more details, and links to other research. For example, the Billion Prices project agrees well with the official inflation rate.

There is an even stronger, much stronger, piece of evidence that the claim is a lie. Interest rates. Does anyone think that some random blogger or whoever knows more about the rate of inflation than the financial markets? Surely market-oriented thinkers, like Brett, must believe the market's message: Little or no inflation.

Watch out though.

Inflation hawks, who watch wage inflation most of all, but oddly enough have seen their incomes rise considerably over the past three decades (it's a productivity thing; they claim more times a week than they did thirty years ago that inflation is rising, so they get raises every year) are watching very carefully the stagnant incomes of the lower half and are ready to pull the plug on any windfall that might come the latter's way.

When Brett's gets a raise, and I hope he does, that's it, the punch bowl will be whisked away and then conservatives who love to bash the unemployed can get back into the pleasurable business of rolling down the window on their Lincoln Town Cars and admonishing folks who they just fired to get a freaking job.

It's lovely that McArdle arrives at a call for us all to sit around the table and work it all out, but she's a liar. She is not an honest person.

Russell, I think you do the lady an injustice. ... But to be dishonest, and a liar, she would have to realize that what she says is incorrect. And the evidence suggest that this is not the case.

I find myself obliged to walk back part of my comment about McArdle.

wj is correct, to call her a liar assumes a kind of intent on her part that is not in evidence, and I have no good reason not to extend her the benefit of the doubt.

I do quite sincerely believe her to be lazy, in the sense that she quite often makes statements about simple, non-obscure factual matters, without taking the trouble to actually go see if they are so.

And, I find her dishonest, in the sense of bad faith in pursuing her arguments. I.e., a lack of candor, an unwillingness to examine what she has said in the light of criticism, a laziness about holding herself to account in basic ways.

So, not my favorite pundit, and not simply because I disagree with her stance.

But, liar is a different thing than the above, and I agree with wj, I have no basis for that, and no good reason to assume the worst.

Apologies to Ms McArdle, wherever she is.

I think she's tucking in Mrs. Calabash.

Russell,

I think McArdle deserves some slack, but less than you are giving. A long time ago, when she was Jane Galt, she always seemed to back up her arguments by reference to convenient "friends in the industry" or sometimes "an old prof (a Democrat!!)." I think these were BS.

To some degree she's cleaned up her act. But in the article cited she's back at it, claiming that "financial analysts" treat the notion of an SS trust fund as laughable. To my knowledge, "financial analysts" don't spedn much time worrying about Social Security. They study companies, or industries, looking for good investment opportunities. That they have any special expertise wrt SS is open to question. And I might add, whether McArdle has had any serious discussions with said analysts concerning SS is also open to question.

If a pension fund has made pension commitments, it needs to concern itself with long-term rates of return - it needs to have an expectation of future income to meet its commitments.

Governments, even if they pay pensions, are not pension funds.

It is meaningless, within a closed economy, to talk about saving money for the future. You can't sensibly save food and retirement homes and hospital care to meet the needs of people retiring in the future. Whatever government bonds are held by the Social Security Trust Fund, when it comes to it the resources consumed by retired people are produced by working people - in terms of resources, the system is pay-as-you-go. So you need to consider what size of retired population the future economy will be able to sustain at what level of comfort.

The Social Security Trust Fund? It's a cumulative record of government borrowing which was rendered notional rather than actual by Social Security Taxes. Not having that external debt is a good thing, and leaves the economy better placed to pay future benefits. But on the other hand, if external debt has been created anyway by deficits exceeding SSTF surpluses...

Russell,

Read the exchange between Baker and Mcardle (links provided above).

When you point out that repayment of principle and interest on the Trust Fund bonds is legally obligated by law and are dismissed as "pushing a tired old argument", then you know you are dealing with somebody who, if not an out an out liar, lights it up big time on the mendacity scale.

It is meaningless, within a closed economy, to talk about saving money for the future.

Exactly correct.

So you need to consider what size of retired population the future economy will be able to sustain at what level of comfort.

I've heard that, since poor people can now afford cell phones (maybe even smart ones), we're all at unheard-of levels of comfort as it is, and it's only getting better. I guess the people who think being poor in the United States is awesome should stop worrying about how we're going to take care of the future aged population. We're obviously so chock full of resources that money should be the least of our worries.

Not entirely on point, but apropos:

“Thus did a handful of rapacious citizens come to control all that was worth controlling in America. Thus was the savage and stupid and entirely inappropriate and unnecessary and humorless American class system created. Honest, industrious, peaceful citizens were classed as bloodsuckers, if they asked to be paid a living wage. And they saw that praise was reserved henceforth for those who devised means of getting paid enormously for committing crimes against which no laws had been passed. Thus the American dream turned belly up, turned green, bobbed to the scummy surface of cupidity unlimited, filled with gas, went bang in the noonday sun.”
― Kurt Vonnegut, God Bless You, Mr. Rosewater, 1965

Cribbed from Atrios.

Perhaps better posted on one of the Hugo threads.

"I have been a soreheaded occupant of a file drawer labeled Science Fiction and I would like out, particularly since so many serious critics regularly mistake the drawer for a urinal." —Kurt Vonnegut

Cribbed from Charles Pierce:

The rich person speaks and all are silent; they extol to the clouds what he says. The poor person speaks and they say, "Who is this fellow? "And should he stumble, they even push him down.

-- Sirach: 13:23


And down:

http://www.eschatonblog.com/2015/04/kicking-poors.html


Swine

This is an open thread, so ...

I found PaulB's comment interesting, so followed the "Posted by" link to his blog, where I found a link, on his blog list, to this entirely reasonable discussion on Laffer curves, including both the top post and comments thread.

(Note 2 describes something I've been considering to be true for some time, for what it's worth.)

Count, the Kansas bill is something I read about on FB over the weekend. Of course, the person who posted the story thought it was just great. My only comment was, "I hope they also banned hang-gliding lessons and electron microscopes."

Liberals can use dog-whistles, too. The difference is that, rather than requiring fear, hatred or bigotry to hear them, one only needs an ear for satire. I tend to think the cheerleaders for the Kansas bill didn't get my intent.

It is meaningless, within a closed economy, to talk about saving money for the future.

So. The world is, pretty much by definition, a "closed economy" -- as in, nothing trades in or out. Does that mean that there's no point in saving for the future?

What am I missing here?

wj:

Why go to Greece? It sounds like you are talking about our CalSTRS problem out here in California. The state waited too long to fix the problem and is now trying to pass the buck on to teachers and school districts. If memory serves, the state cut its contribution based on the dot com boom (and unrealistic expectations) and is only now becoming realistic.

But hey, we are going to have our bullet train! Priorities, don't you know.

bc, I used Chicago and Greece as examples because I thought they would be familiar to most of those here. I could have used Vallejo, CA going bankrupt (since it is just a few miles away, so *I* am familiar with it). But how many folks east of the Sierras would have even heard of it?

What am I missing here?

Assume an economy with a fiat currency and no foreign trade. Envision the government placing a pile of currency in a vault to spend at some time in the future to meet some envisioned need.

The future arrives. Has anything been gained from this effort?

I think the rub is that PaulB didn't explicitly say it is meaningless to talk about the federal government saving money for the future.

A funny story about a related discussion - I was reading a blog post some years ago that was addressing a criticism of the sectoral-balances model (you know, the one based on a simple, unavoidable accounting identity).

The criticism was based on a thought experiment involving a man alone on a tropical island collecting coconuts and saving them (to eat later?). What this thought experiment was supposed to prove was that there was no need for a government deficit in order for the private sector to save in excess of investment over a given period (with no external sector involved). Since there was no government on this island, the man's ability to save coconuts was supposed to demonstrate that "saving" was not dependent on government in any way at all.

But, alas, coconuts are not money, and, even if they were, the trees they came from would be playing the role of the government, creating net currency for the man, representing the private sector, to save.

If I recall, the guy who came up with this thought experiment was another blogger - who blogged on economics, no less. I'm guessing his readership consisted mostly of Tea Party members/sympathizers.

See also "paradox of thrift"?

Also, a call for cuts in benefits and raising the retirement age does not "save" Social Security in the future. It just cuts the program both now AND in the future.

But the fear mongers never come right out and say they think we, as a society, should cut spending that insures the elderly do not sleep in the gutters and spend those resources elsewhere so others can enjoy a greater share of the total social output.

dig that awful black culture.

Capitol Hill Babysitting Co-op?

Re: The conflation of the Reagan Tax Cuts with the Trust Fund.

They're conflated because they're part of the same thing. For lots of reasons obvious to anyone who sits and thinks about it for five minutes, the only place for the US to save trillions of dollars over thirty+ years is in it's own debt.

The only way to pay it back is, of course, to pay back that debt.

So to make the whole thing work out, Reagan raised SS taxes (as SS recipients would be getting the extra money) and CUT taxes on the upper brackets (that is, those who were above the cap or, like capital gains, not subject to the cap).

This was planned to be revenue neutral (that is, the hikes and cuts were to be equivalent, to avoid screwing with the economy...we are talking a lot of money here).

And, of course, when the SS Trust Fund needed to be reedemed -- the lucky duckies who saw their taxes CUT in 1983 would kick in the extra money. That is, it'd come from rolling back those tax cuts (or magical supply-side fairies. Your pick). And when the Boomers were gone, the SS tax hikes evaporate.

That was the plan. Boomers pay extra for 30 years, rich pay less. Then Boomers retire, rich end their 30 year tax-cut vacation, and kick in what they used to to cover the boomers. Then it all reverts back to the pre-1983 rates.

What the SS shuffle is all about is pretty simple: The people who paid EXTRA are about to ask for the money they're owed. The people who got a tax break really don't want to pay it.

So, ergo, SS is in crisis. Nothing to do but cut benefits or get rid of the whole program.

It's like when a company shortchanges their pension fund (usually claiming they'll get 8% yearly returns, so they can put in less) and when the shortfall becomes huge, states that their pension was 'too generous' and slashes it.

Welcome to America. If you can't spot the sucker, it's you.

Has anybody calculated the "unfunded liabilities" of Department of Defense Spending going out to infinity? I'd wager it is a big scary number!

Maybe we should cut it or submit it to chained CPI, or even, yes I know this is dire, require an official Congressional Declaration of War before it can be employed.

It is meaningless, within a closed economy, to talk about saving money for the future.

I'm not so sure.

Assume an economy with a fiat currency and no foreign trade. Envision the government placing a pile of currency in a vault to spend at some time in the future to meet some envisioned need.

The future arrives. Has anything been gained from this effort?

But this is not a good analogy. Savings are not usually turned into $100 bills to be stashed in vaults. They are invested. (That's why the whole issue of whether there is a "pot of money" in the trust fund is nonsense, as you know. There's not, any more than our private savings are a pot of money).

So we as a society have some savings to spend on capital goods. Don't we have a choice as to what thse capital goods, in turn, will produce? Why doesn't deciding to produce yet more capital goods as opposed to consumer items constitute saving for the future? Similarly, the use we make of dual-purpose goods, or maybe even of our time, may constitute savings.

byomtov,

Appreciated. However, it is a widely shared misconception that if the government spends less today (puts dollar bills in a vault) that somehow it will have more "fiscal room" to increase spending in the future.

Agree on what we spend it on today matters. One may call it investment (it certainly is) or consumption (we expend labor hours and consume resources to build it).

But I'm pretty sure you would agree that foregoing the use of currently available labor hours today (unemployment) can never be recovered. Once they go unused, it is too late.

Thus, from a fiscal standpoint, we should be spending more, not less.

wj,

If collectively "saving" (i.e., spend less today)would result in a better future, then fiscal austerity should bring us prosperity.

So, does it?

Kind of depends on which spending you cut. If you cut spending on white elephants (the F-35 leaps to mind), austerity will help. If you cut spending on building and maintaining infrastructure, austerity will hurt.

bobbyp,

Sure. It's stupid to let resources sit idle when they can be put to productive use. That's not saving, it's waste. And if we need to borrow to do that then so what?

Positive NPV, anyone?

"Kind of depends on which spending you cut."

In a slack economy net decreases in spending hurt.

"That's not saving, it's waste."

Yes. But somebody has to "not spend" (i.e., "save") to have that waste.

I guess it's all in how you look at it :)

That's the point, Bernard. The federal government can't really "save" the way you or I can. It's meaningless for it to save the money it creates out of thin air. It can spend money into existence or tax it out of existence, borrowing (unnecessarily, mind you) when it spends more than it taxes.

Just gotten a report from one commenter that his comments appear on the blog and then disappear. We aren't deleting anything, so if anyone else is experiencing this, please send us a mail (address under the kitty) and I'll put a ticket in.

bobbyp: while you are completely correct about the Feds having to pony up the cash for SS, regardless of the status of the SS trust fund, packaging the obligation in the form of "bonds" makes it a much more serious matter.

The Feds will drag their feet paying supplier invoices, they'll blow off court settlements and UN dues for *years* if it suits them, but when Little Bobby P's $25 savings bond is presented for redemption, they better cough up the cash (even if freshly printed).

Does that mean that a SS bond default would trigger a wider default? No idea, and I'd rather not have the GOP light the fuse on that particular nuke to find out if it works.

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