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September 10, 2004

Wedge
Posted by Teresa at 02:36 PM * 182 comments

I’ve been ruminating about a one-liner that’s been floating around the meme pool since lord knows when. You’ve probably heard it a thousand times:

By the time you retire, there’ll be nothing left in the Social Security retirement fund.
It’s untrue, of course; but for those who aren’t aware that it’s untrue, it’s profoundly frightening.

We’re set up to be a cooperative society. We believe that by working together, we can as a people be richer, safer, smarter, and happier. However, this cooperation requires a certain basic level of trust. The belief that you could be left penniless in your old age, after a lifetime of contributing your regular fraction to the public good, creates a huge breach in your sense of trust.

It’s not the kind of idea that turns you into a monster overnight. I’m inclined to believe that the commonest reaction to it is dull, low-level grief: you thought life in America would be better than this. Still, if that’s what you have to look forward to, you’d better get while the getting’s good. You’re going to need that money.

Meanwhile, you find yourself resenting calls on your generosity. True, you’re probably a lot better off than the people you’re being asked to help; but you’re not comparing them to your present self. Lodged in your heart there’s an elderly, needy, cast-off version of you, whispering that when the time comes, nobody’s going to pay to help you. Children stop looking like our hope for tomorrow. Instead, they’re the heartless little bastards who’re going to let you live on dogfood in your SRO until a heat wave finally does you in.

The other thing about believing there’ll be nothing left when you retire is that it makes you far less likely to scream in outrage over the long-term looting of the national treasury. After all, you already know you’re not going to get any of that.

It’s not inevitable. I think we need to say so, early and often.

Comments on Wedge:
#1 ::: LauraJMixon ::: (view all by) ::: September 10, 2004, 03:07 PM:

Well said, Teresa.

#2 ::: xeger ::: (view all by) ::: September 10, 2004, 03:26 PM:

It's an aspect of calls on generosity, but the nature of a litigenous society means that I'm nervous about speaking to children [that aren't associated with me], assisting with first aid/responder situations, and a whole host of other things that one might think of as part of the community glue...

#3 ::: James Angove ::: (view all by) ::: September 10, 2004, 03:38 PM:

Teresa: I agree with everything above.

But I wanted to highlight this:

THN> We’re set up to be a cooperative society. We THN> believe that by working together, we can as a THN> people be richer, safer, smarter, and
THN> happier.

It is that whole fact (and I'm preaching to the choir, but humor me) that is under attack. And it a observed property of the world, not a hope or an slogan or a choice, that we are all in this together. There is no long term benifit to anyone in denying that fact, but there is tremendous short term gain for some in shattering our society by spreading the lie that individuals can go it alone, and that hostility to the needs of other subsets of our society is not ultimately self-destructive.

The hysteria about FICA is one component of that attack; the odius "Taxes are theft" meme is another, and they are both part of the same project of looting.

#4 ::: James Angove Comment Spam Here! ::: (view all by) ::: September 10, 2004, 03:39 PM:

You know, I was really sure I had figured out a way of marking quotes that didn't require using html.

#5 ::: LauraJMixon ::: (view all by) ::: September 10, 2004, 03:46 PM:

There's been some interesting work done regarding social cheaters and the facility we've developed as a species in detecting it. One reason proposed for the development of our big brains and self-awareness is the darwinian struggle between the benefits of cooperative vs competitive social behavior in primate groups.

#6 ::: Madeleine Robins ::: (view all by) ::: September 10, 2004, 04:17 PM:

It's a curious thing: I was born, I think, to feel that I wasn't doing -enough.- I pay my taxes, not exactly with a song in my heart, but in the sure and certain belief that that's where the roads and schools and police and army and help for people who are not as fortunate as I am, come from. My brother--same lefty-liberal school, same parents, same upbringing, a bright, funny guy in many ways--falls into that "taxes are theft" camp. He doubtless believes the cant about Social Security too. (There's a point after which I don't know his views, since in the interests of preserving the relationship we don't talk politics or religion.) He is not a cheater--he pays his way, and would likely dig into his pocket for a quarter to help a homeless man. But he is utterly opposed to the idea of a government-organized form of cooperation; he has swallowed the notion of rugged individualism and social survival of the fittest...and I don't understand it. All I can think is that there's a genetic component to this part of his character.

#7 ::: Matthew Dixon Cowles ::: (view all by) ::: September 10, 2004, 04:49 PM:

The Social Security trust funds won't have anything in them by the time I retire mostly because they don't have anything in them now.

That is, they invest in federal government bonds. Which is one part of the federal government "investing" by lending money to another part. It's as though I saved for my retirement by writing myself an IOU each month.

The money that those bonds yield is from current tax revenue or borrowing. So what's being paid out now comes from what's being taken in now. The idea that there's a meaningful fund is mistaken.

That's a separate question from the question of whether Social Security will continue to be paid. I rather think it will, to one extent or another.

#8 ::: Steve Eley ::: (view all by) ::: September 10, 2004, 05:10 PM:

It’s not the kind of idea that turns you into a monster overnight. I’m inclined to believe that the commonest reaction to it is dull, low-level grief: you thought life in America would be better than this. Still, if that’s what you have to look forward to, you’d better get while the getting’s good. You’re going to need that money.

This isn't my reaction at all. Yes, I expect to be screwed out of Social Security. It seems economically inevitable. And that's why my wife and I are maxing out our Roth IRAs and our 401(k)s. We'll have plenty of money, thanks, we won't need our grandkids' money.

I'm all in favor of providing for other people if they can't provide for themselves. But to expect that other people will provide for me? When I have the ability to provide for myself? That's not just unwise, it's arrogant.

I'm opposed to Social Security in its present form, and if I could get rid of it in a gradual manner I would. But it's not just because I don't expect to get anything from it. It's because what I give to it is handled very badly.

#9 ::: Clark E Myers ::: (view all by) ::: September 10, 2004, 05:21 PM:

It does seem to me to be true that By the time you retire, there’ll be nothing left in the Social Security retirement fund is true for some fuzzy logic value of true.

The burden is increasing and the value in relative life style of the payout is declining. When I first noticed Social Security taxes my Dad's deductions ended about the time the Christmas bills were paid. When I started working myself despite not making much FICA was a small deduction and quickly paid for the whole year - as the years have passed it has taken longer and longer and longer to go away for the year and now it never goes away at all.

I knew when the Brits demonetized their coins the U.S. would follow and I look at takebacks in Europe, especially Germany, and in the United States (creeping age for equivalent benefits) and see some elements of truth in the allegation.

Some say We’re set up to be a cooperative society We may have been built that way we may have been that way but we aren't that way - see e.g. Karl Polanyi - The Great Transformation. You'll have to persuade me that working for the state is working for the community.

Certainly it is not inevitable in the long run - the long run by definition allows all changes. In the long run we are all dead. It is inevitable in that the age pyramid for workers during my retirement is what it is - not subject to change - the short run.

#10 ::: David Hungerford ::: (view all by) ::: September 10, 2004, 05:30 PM:

By the time you retire, there’ll be nothing left in the Social Security retirement fund.

It’s untrue, of course; but for those who aren’t aware that it’s untrue, it’s profoundly frightening.

Is there a source you can toss my way for the "of course"? So far as I'm aware, the Social Security Trust Fund is nothing but government bonds that will have to be redeemed with my tax money down the line when they come due. Thus, all having the trust fund does is cause the money to come from my income tax instead of my FICA. With the boomers retiring and driving the wage-earner-to-retiree ratio down to something like 2.5 to 1 over the next few decades, I don't see how the system won't implode.

Raising the retirement age or cutting benefits might do it, but that would take a major shift in voter demographics. Of course, this might happen. Millennials/Gen Y seem to be more politically aware and active, and from my own admittedly limited observation, they don't believe in the survival of Social Security. (I'm involved with a social group of about 40 more-or-less fannish folks, ranging in age from 17 to 35 and going across the political spectrum from a Naderite to some Dean supporters all the way to a few folks who think Bush is doing a good job. Social Security came up a few months ago, and not a single one of us expects to see a dime from Social Security. Not one. We're resigned to paying into it because the older folks bought into it in good faith, but as a group, we want out.)

The rest of your article, I agree with. Whether the reason for it is real or not, the breach of trust is real, and yeah, it's a problem.

Dav2.718

#11 ::: Teresa Nielsen Hayden ::: (view all by) ::: September 10, 2004, 05:31 PM:

Steve, Matthew: It's our government. It's our tax money. It's allocated by our legislators. They can raid it, and they can top it up again. If there's a budgetary shortfall, it's not because earlier retirees have taken more than their share; it's because George has repeatedly cut the taxes of his friends and campaign contributors.

Being afraid that the Feds are going to turn you out to starve in your old age is like being a little kid who's afraid that his well-to-do parents are going to stop feeding him. It's something that'll only happen if the people in power decide to make it happen.

#12 ::: Matthew Dixon Cowles ::: (view all by) ::: September 10, 2004, 05:56 PM:

Steve, Matthew: It's our government. It's our tax money. It's allocated by our legislators.
[. . .]
Being afraid that the Feds are going to turn you out to starve in your old age is like being a little kid who's afraid that his well-to-do parents are going to stop feeding him.

Indeed. That's what I meant when I said that the absence of a meaningful fund is a separate question from the question of whether Social Security will continue to be paid.

#13 ::: Mris ::: (view all by) ::: September 10, 2004, 05:59 PM:

I live on the point of a wedge. I'm the only child of an only child. I have several healthy great-aunts and -uncles to whom I'm quite close, people with no grandchildren or even no children. I have grown up expecting to be in charge of the care of at least eleven people from the generation before mine or the generation before that in their old age. I recognize that this is the best case scenario, that I am very, very lucky to have these people in my life. I hope they all stick around to make me clutch my hair and wonder how I can take care of them all at once. But there are so damn many of them. When I was 14, I rejoiced when one of my dad's cousins had a child, because she reduced the number of my future old people from eighteen to thirteen. Another born the next year knocked another two off the tally. I still love all eighteen of my original count, but having another pair of hands and another brain whose responsibility it could be was such a colossal relief. Forming my own family unit as an adult gave me more pairs of hands to help out but also more future old people to take care of.

The care of elderly Boomers is going to have to come from somewhere. I believe that the government will continue to make sure most elderly are not starving in a gutter, but even now poverty among the elderly is much higher than it is among working-age people. I expect that the pittance will get smaller and smaller and that it will take a larger percentage of my taxes to do it, or that the people in charge will hand us all a choice and say, "Your old folks can have more money, or you can have functional schools. Your old folks can have more money, or you can have decent veteran's services. Your old folks can have more money, or your highways can be decently navigable. Choose." And I believe that some of that choice, a large part of it even, will be necessary. We already have tough economic choices to make. An aging population will not make those choices disappear.

So no, I don't expect to starve in the gutter. I also don't really expect to fully retire. I don't expect to have that choice. I don't expect that the government will continue to make my life as easy as it is now in caring for those old people. I don't expect that it will be able, at least not without cutting some other things I also value. In an ideal world, we would cut graft and corruption and use that money to care for the vulnerable in our society. I will continue to try to work towards that world. But don't ask me to feel too very optimistic about it coming to pass, especially not in this administration.

#14 ::: Steve Eley ::: (view all by) ::: September 10, 2004, 06:05 PM:

Teresa:
Steve, Matthew: It's our government. It's our tax money. It's allocated by our legislators. They can raid it, and they can top it up again.

Top it up with what? Sure, they could raise the mandated tithe to 20% instead of 15%, but I'd rather they didn't. It'd cut into my United Way contributions.


Being afraid that the Feds are going to turn you out to starve in your old age is like being a little kid who's afraid that his well-to-do parents are going to stop feeding him.

The analogy fails when you consider it's the little kids in that house who do all the farming to make the food.

Anyway, I'm not afraid of it at all. I expect it to happen; but I'm not afraid. I'm building a nice big pantry with my own food. When the other kids are wailing because they only got two tablespoons of Cheerios this morning, I'll be cooking whatever I like. In Europe, if I feel like it. Because I saved.

#15 ::: Mike Kozlowski ::: (view all by) ::: September 10, 2004, 07:34 PM:

Steve, the Social Security "crisis" is essentially manufactured; Googling will educate you (and also miseducate you, because as Teresa notes, there is much intentional disinformation out there), but this CBPP article is a good place to start: http://www.cbpp.org/6-14-04bud.htm

It notes that the 75-year shortfall for Social Security is either 0.7% or 0.4% of GDP (depending on whether you take the Trustees' estimate, or the CBO's). Meanwhile, the cost of Bush's tax cuts, if extended for 75 years, is 2% of GDP. Just raising the taxes to where they were in the horrible, oppressive Clinton years would give us 2-4x what we need to sustain Social Security.

#16 ::: Nancy Hanger ::: (view all by) ::: September 10, 2004, 07:37 PM:

I take a look at the yearly "this is what you have to look forward to" note from the Social Security office, and I think, "That won't even buy cereal." And it's true. Being self-employed means I've been contributing 100% to my FICA (no employer to help me) and at this rate, I will never, ever be able to stop working, no matter how sick or how old I become. I will literally have to work until I die in my desk chair, slumped over some stinky bluelines.

There is no family, no aunts, no brothers, no one to "help."

There is no savings -- all my earnings are going towards living expenses and paying taxes -- as a self-employed person, I'm paying almost 40% of everything I earn towards taxes and SS.

Cooperative society is all very well and good, but if my social security payments won't even begin to help me pay for me to cut back on working when I'm, say, 75 years old, who will help? What good is the 40% of every penny I earn if it doesn't even pay for a box of cereal?

#17 ::: Avedon ::: (view all by) ::: September 10, 2004, 07:51 PM:

You mean, "In Europe, where it won't be so horrible to live because they didn't kill off their social security system"?

#18 ::: Karen Cooper ::: (view all by) ::: September 10, 2004, 07:52 PM:

Your assertations, Teresa, are things I agree with. The budget of a big government just doesn't work the same way as an individual's. My favorite economics professor taught this, and I believe it.

The problem comes when you want to convince someone who is skeptical. Like some of the posters in this thread. And you haven't got anything there to convince them with. Neither has the Democratic Party Platform 2004. Go read it and see; I did. If Kerry has anything on this topic, I can't find it and I have searched his web site twice now.

The Republican platform on Social Security (go read it, I did) contains such stupid ideas as the "privatization" sell. It's a dumb idea designed to appeal to anybody who thinks they're going to make better investments than the government, and who thinks that, if some of those self-investing folks go broke, well, that can't possibly happen to him. But it's something pleasant to daydream over. The idea provides the illusion of control. Imagine the appeal. That's just a better currency right now than the warm and fuzzy "the government will take care of you" stuff you're handing out.

Which is too bad, because I truly believe that it is among the government's jobs to keep the most needy above water. Not doing so is immoral.

Kind regards.

#19 ::: Mike Kozlowski ::: (view all by) ::: September 10, 2004, 08:00 PM:

Nancy, 40% is a large tax burden, to be sure. Surprisingly large, in fact. You live in New Hampshire, yeah? Unless I'm mis-reading things, they don't have a state income tax, so if you're paying out 40% of your income in taxes, then you must be paying a 25% average tax rate, after the 15.3% self-employed FICA/Medicare taxes.

Only, well, according to Yahoo's average tax rate calculator, in order to be paying a 25% average tax rate, you need to be making in excess of $150K per year (with no deductions at all). Of course, you stop paying Social Security after $87K, so that still wouldn't put you over the 40% mark, but never mind that -- If you're making $150K a year and are worried about future cereal consumption, Steve Eley there can probably give you some tips on saving.

If not, is it possible that you're perhaps paying less in taxes than you thought?

#20 ::: Randolph Fritz ::: (view all by) ::: September 10, 2004, 08:03 PM:

David, read Krugman on the basics.

Steve, no investment--not equities (stocks), debt securities (bonds), not cash, not gemstones, not precious metal--is certain. Your IRAs and 401(k) may turn into so much worthless paper. And they all depend on policy to maintain their values. When the SEC stopped doing its job, fraud in the securities markets (Enron!) made many stocks into so much worthless paper. Debt securities depend on the rate of inflation--the inflation that is likely if W. Bush is reelected will devalue them dramatically. Investments in any currency depend on international trade policies; it is likely that the dollar will not be the world standard of value in 20 years and there will be many losers in the resultant capital shifts. Metal and gemstones are only valuable as long as most people hold them; in hard times, many people will try to sell and the value will drop.

It all depends on policy--every penny of it. And, since it does, I think it makes good sense to make policy that protects everyone, rather than the minority of lucky investors.

The odd thing is, I'm sure that you--and just about any savvy investor--is aware of the facts I mentioned above. But, somehow, when it comes time to make policy, many of us forget.

#21 ::: Graydon ::: (view all by) ::: September 10, 2004, 09:54 PM:

Prosperity and civilization *do* manage to obscure some basic truths, the learning of a hard life.

One of the most basic of those truths is this -- you cannot kill fear with an ax.

You cannot kill fear at all; fear is a thing in your heart, and if you cut your heart out, you are dead, and the shape of fear is dead with you.

I have said before the that American Radical Christian Right isn't, that they're fundamentally atheistic. One of the great teachings of Christianity is that you do not need to fear. With faith, all things are possible; in the love of God, the just and the pious are sure of their reward.

For people who ought -- in the certainty of their faith, and the power of their conviction -- to have no fear at all, they're creatures chained to terror, a terror of losing money, place, and material power.

None of those are of themselves bad things; like all things else, what matters about them is what you do with them.

If you need, to build a cage for fear, to brick up the broken knowledge that money is not the same thing as goodness, to not believe that wealth is neither virtue nor the reward of virtue, that the wonder and the glory that is the material world can be understood and used to change all things for the better, to keep all those things away from the certainties of a distant childhood and the fear of surrendered power -- because, God knows, no one would any sense would trust and surrender power to *them*, and there are none better than them in all the world -- then you will, in whatever haze of deception, come to prefer to destroy your civilization, rather than endure the change that comes from peace and prosperity and letting everybody get at opportunity.

One of the ways you do this is break the machinery of government; treat the public sphere as a mechanism for mass theft, as a machine for *making* wealth equivalent to virtue, as a device for oppression -- price supports backed up with military power, that ancient doom of empires.

So you remember that repetition creates belief -- it does; the insides of our heads are the lands of magic -- and repeat what you want to be true, because if it isn't, then, well, you're a liar and a coward and a skinflint son-of-a-bitch, a stranger to generosity and hope and courage.

All courage isn't found in the service of arms -- ask anyone who has been honest with their children about something they're not proud of, or who has done the right thing at personal cost -- but, well, look at the Right.

Not the followers -- it's a ghastly set of certainties, but people will follow any certainty in which they come to believe -- but the folks out front, burning down the house?

Social Security -- rather like the Canada Pension Plan -- is a promise, not an investment.

If what you really want is to live in a world where no one tells you what to do, and virtue is measured with money because money is a nice, simple abstraction and really easy to understand, unlike the beyond-any-one-mind complexity that's actually there in the world and society.

Well, OK -- everything possible is measured with money because they've got money, that too. I doubt that much honesty gets into their change-fearing souls, but sometimes it might.

But, hey, they're old, too, mostly; this is not their comfortable time. There's a billion people in India and another billion people in China who aren't going to be poor all that much longer; there's strangers to their knowledge all over the place.

Embrace this with courage, and it's the biggest opportunity anyone has ever had -- more geniuses; more scope of choice; more solvable problems; more peace, and more prosperity.

Fear this, fear change and honesty and the judgement of your peers -- fear the idea of *having* peers -- and you get, well. You get religious war and disenfranchisement and people actually *enacting* the idea that money and virtue are the same thing, which translates out of sterile phrases into keeping people poor by threats of death and direct death and indirect deaths by starvation and disease and just plain writing the rules so debt is a chain unto the seventh generation.

And yeah, this does have something to do with social security -- both kinds -- when any idiot can recognize that there's a lot of people out there who really can't be trusted to chip in, help out, or give a damn about their neighbours, not when real wages have been dropping for twenty years.

Is society a machine for maximizing general access to choice, or maintaining existing wealth?

Do you prefer maximizing the number of people who have the opportunity to accumulate capital, even at the expense of the efficiency with which capital can be accumulated, or do you prefer protecting existing capital, to put this question (incompletely) into money terms?

The folks who voted for Social Security, way back when, were pretty solidly on the side of the former; the folks who are insisting it's broke and useless and ought to be abolished now are on the side of the latter.

Either way, everbody lives just as long as they live, and not any longer, and no fearfullness nor caution will keep death from finding anybody.

It is the time before that, which there is the possibility of doing something about.

#22 ::: Michelle Sagara ::: (view all by) ::: September 10, 2004, 10:10 PM:

We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence. "Necessitous men are not freemen." People who are hungry and out of a job are the stuff of which dictatorships are made. FDR

#23 ::: Steve Eley ::: (view all by) ::: September 10, 2004, 11:19 PM:

Nancy Cooper:
The Republican platform on Social Security (go read it, I did) contains such stupid ideas as the "privatization" sell. It's a dumb idea designed to appeal to anybody who thinks they're going to make better investments than the government, and who thinks that, if some of those self-investing folks go broke, well, that can't possibly happen to him.

Investments? My Roth and 401(k) are invested in index funds. The S&P 500 has a historical return of about 11% a year. What's the return on the "government investment" in Social Security -- if such a term even applies?

FWIW, I'm not in favor of the Bush privatization proposals either. They're a lame halfass measure that won't do anything substantive to improve a broken system, and they're contrary to the point of Social Security as it exists now -- not as a savings plan, but as a wealth redistribution plan.

I'm not intrinsically against wealth redistribution so long as it's limited and goes to people who really need it. But Social Security doesn't. It goes piecemeal to everyone, whether they need it or not, on an arbitrary formula that once made sense as a working incentive but now makes no sense at all.

Bad idea? No. Bad implementation.

#24 ::: Steve Eley ::: (view all by) ::: September 10, 2004, 11:37 PM:

Randolph Fritz:
Steve, no investment--not equities (stocks), debt securities (bonds), not cash, not gemstones, not precious metal--is certain. Your IRAs and 401(k) may turn into so much worthless paper. And they all depend on policy to maintain their values.

Very true. But there are degrees of confidence. My retirement savings are in four index funds: the S&P 500, a small-cap growth index, a Pacific stock index, and a European stock index. (There's also a bit of my company's stock due to matching funds, but it's less than 10% of my total holdings.)

These are very large index funds with top brokers. If the bottom falls out of the S&P 500, the top European stocks, and the top Pacific stocks all at once, it probably means civilization has collapsed, and Social Security isn't going to be much use at that point either.

Anyway, where are you going with this? Are you trying to convince me that I shouldn't save? That there's no benefit in people making their own plans, and that everyone's best off if they treat Social Security as their sole provider in retirement? Because if you are, I really think the math is against you there.

#25 ::: Tom Whitmore ::: (view all by) ::: September 11, 2004, 12:14 AM:

I was fortunate enough to have money set aside that I can't touch until after I'm 55 in a TIAA-CREF account. Most of my other investment is in books. I'm set to get something from Social Security.

I don't believe the nation is my community. I contribute lots of work to my several communities, and always have -- I tend not to contribute money because I use that for living on. And I dislike the way most current politicians are playing on fear to destroy a sense of community -- it's been going on far too long.

Fascinating discussion here.

#26 ::: Matt McIrvin ::: (view all by) ::: September 11, 2004, 12:43 AM:

Many people seem to hear that they're certain not to get anything from Social Security from financial advisors. The advisors' vested interest in that belief is obvious.

#27 ::: Matt McIrvin ::: (view all by) ::: September 11, 2004, 12:45 AM:

...And, though I can't speak for Teresa, no, I don't think you should rely on Social Security as your sole source of retirement income, if you can avoid it. But neither should you particularly resent the people who are getting it now for getting a benefit from you that you will certainly never enjoy.

#28 ::: Steve Eley ::: (view all by) ::: September 11, 2004, 01:23 AM:

Matt McIrvin:
But neither should you particularly resent the people who are getting it now for getting a benefit from you that you will certainly never enjoy.

Never said I did. I do hold some resentment against the system, for being so bloody inefficient when there are better ways of helping people. If it worked as Roosevelt intended that'd be one thing; but it doesn't now, and it gets a little worse with each new stopgap.

But resent the recipients? For what?

#29 ::: Paula Helm Murray ::: (view all by) ::: September 11, 2004, 01:26 AM:

I don't resent Social Security for my mom even though she almost never worked, because she was so happy to get it, and various viccisitudes made her life seem so precarious at times (about a year before my father died, he bet a mortgage against Microsoft stock. It died in worth about a month before he passed. And caused him agonies, but way less than it did my mom. She had to sell a huge chunk of land to just pay off the mortgage and not have to pay monthly payments which were larger than her annuity from his pension.

And he set up his military benefits so that his wife had nothing. What's up with that? i so don't understand that. But he had a streak of paranioia from living in the Depression and in a disadvantaged community so much so that I do not understand it.
Mom's okay now, but there are other things hanging (dad was a Gold Bug, there is a lot of metal in safe deposit boxes) that I totally dread her passing because there is a lot of stuff that should have been declared as assets that were not. And my sister and I are going to have to deal. My older brother is a flake who can't be trusted (he got broken in Viet Nam and, because of a college psychiatry degree, does not wish to be fixed -- he has a happy life but while disturbed he stole a lot of things from my folks and was cut out of the family trust).

#30 ::: Dave Bell ::: (view all by) ::: September 11, 2004, 02:45 AM:

I saw a claim in a British newspaper this week that half of British earnings were taken in taxes.

It's not just income taxation. There's VAT, which is a form of sales tax as far as the end use ris concerned. There's a hefty tax of road fuels. There's the property tax which goes to the local governments -- counties and such. I think they're counting the taxes on companies, which we all pay as part of the prices of goods and services.

But if we're paying 50% and somebody in the US is paying 40%, remember that our medical care is included in that. We can still buy insurance and pay for private medicine, if we wish. We don't need to.

I assume there's some bias in the reports, and I sometimes see people on the net who go beyond bias into either wilful ignorance or outright untruths, but if I was living this life in the USA, I'd be one of those people squeezed between bankruptcy and death by the system of medical care.

It might not be as tight a squeeze as I fear, but that fear is, to me, more real than any fear I might have for my freedom, or of terrorists, or even for the insane foreign policies of a nuclear-armed superpower with pretensions of democracy.

#31 ::: Randolph Fritz ::: (view all by) ::: September 11, 2004, 03:29 AM:

"Anyway, where are you going with this?"

Simply that both Social Security and private investments depend on government policy and that, in the clinch, Social Security is more reliable. I hope you do save. I hope more people do. But don't throw away the safety net, hunh? And don't try to take mine, or my mother's.

#32 ::: PiscusFiche ::: (view all by) ::: September 11, 2004, 11:25 AM:

I've been arguing with my conservative, heretically Mormon father, who thinks that taxes should be cut, because the money that the "leftist" programs go to, goes towards people who aren't contributing to the tax flow. His point is that those people, if they paid taxes too, would have a higher stake in how their money was spent. This is his justification for why the rich shouldn't bear the brunt of the tax burden. (I agree with it--but only to a minor point. I think investing your money in society makes you more concious of the value of that money, but I don't think that logically leads to "Let the poor shoulder their own responsibilities by themselves," as my father seems to.)

I don't get it--he's not rich currently, although once we had quite a few assets in stocks, so why he doesn't see the value of the government programs that help him out, or his five children, all of whom had to get government grants to finish their schooling after high school. He wasn't born nor did he grow up and raise his kids in a completely self-sufficient society. Nor has holding the status quo financially speaking helped our family. My grandparents on my mother's side weren't rich by today's standards, but in their time, they were frugal, saved money, bought a modest house, saved more money, bought a nicer house, went to Europe, raised all their kids, and slid into their declining years with a healthy nest egg. My parents followed this pattern, and for a short time, we were able to mimic the life arc of my grandparents. But the economy and jobs weren't the same as for my grandfather's time. My dad didn't have The Career Path--he had a series of jobs, from which he would periodically be laid off or forced out of by lowered wages--these periods eventually drained the saving he had accrued. He couldn't afford to send all of his kids to college--we went partially on the money my grandparents had saved, and partially on government grants. It's not like any of this was something we could have produced on our own through simple hard work and diligence. It's not laziness--at least, I don't think it is. Times are changing, and the more we cooperate, the more able we are to weather it.

I have to run to the bank, so I can't clarify this more or state it better, but I find all these comments fascinating.

#33 ::: mythago ::: (view all by) ::: September 11, 2004, 01:02 PM:

I'm one of the skeptics. I don't believe that it's inevitable, in the sense that legislators could 'top it up.' But I do believe it's inevitable, in the sense that those legislators will be at the beck and call of elderly Baby Boomers. I have no illusions that the previous generation (as a group) is going to be the first generation to say, in its old age, "Let's not just be in this for ourselves."

#34 ::: Magenta ::: (view all by) ::: September 11, 2004, 01:33 PM:

What I am afraid of is that the powers-that-be are "redefining retirement". When I was recently unemployed, and going to a bunch of Workforce Center workshops, I heard some startling "news". Retirement isn't was it used to be. Plan on working during your retirement; retirement is switching from a high stress job (read higher paid) to a lower stress job (read lower paid, without benefits.) As someone who has always had a "low stress", i.e. low paid job, this means working until I drop. I'm lucky, not only am I not in debt, but I do have savings, and some possibility of inheritance, if my mother's nursing home doesn't get it all. But there are millions of my contemporaries who are in middle age with debt instead of savings. I already have to wait until 66 to get full Social Security. I probably will be able to retire sometime. Many won't be able to.

I have no offspring to help me in my old age. Never wanted kids, neither did my brothers. I hope to have enough younger friends that I will at least have people to talk to when I'm 80.

We probably need to redefine retirement, and coping with aging. But I don't want the govenment to do it for me. I don't want to EVER live in a nursing home. My mom's is pretty good, as such places go. But it's a lousy model of care, except for the short term. I want to live out my life surrounded by my own books, and cooking my own meals, or at least helping to. I don't want to live with a bunch of strangers that I am forced to socialize with. I'm not worried about living on the street as an old person as being put in a home and left to rot.

#35 ::: Daniel J. Boone ::: (view all by) ::: September 11, 2004, 02:46 PM:

Clark said: "You'll have to persuade me that working for the state is working for the community." Indeed.

Of course some here have already been persuaded. (I first wrote, and deleted, the statements that it was "an article of faith" or "a given" -- but both of those imply, unfairly, a lack of considered judgment.)

"Taxation is theft" is only an odious idea if all (100%) of the fruits of taxation are actually applied to community benefit. If you believe, as I do, that the vast majority of the fruits of taxation are skimmed off for the benefit of various thugs, pork ranchers, and looters, then the idea becomes merely a truism, the odiousness of which derives from its truth.

I am often offended by people who equate rejection of a government role in promoting civil society with the rejection of civil society itself. I love civilization and want to live in a civilized society. I don't see myself as a rugged individualist rising to the top of a melee red of tooth and claw -- I wouldn't be the first meal, but I wouldn't be the last, either.

It's just that in my experience, government is a combination of predator and parasite, more dangerous in the long run than any freelance predators could hope to be. Goverment-as-predator/parasite sucks away so much of the blood of society that we are left with a pale shadow of the civilization we could build if we were not being daily robbed of a rough third of our produce.

I expect to receive nothing from Social Security, because I believe that the looters will have devoured the program before I am of age to get any of my money back. That creates no fear for me, because I've understood it since I was a child. For me, Social Security has always been just another tax, which is to say, protection money paid because, if not paid, men with guns would come to collect.

#36 ::: Clark E Myers ::: (view all by) ::: September 11, 2004, 02:47 PM:

If it worked as Roosevelt intended that'd be one thing; but it doesn't now, and it gets a little worse with each new stopgap. Steve Eley

Seems to me it's pretty hard to say what Roosevelt intended and harder to say Social Security doesn't work that way now. All I know for sure that Roosevelt intended is that when asked why he didn't push for a straight transfer payment system from the general fund to the needy elderly Roosevelt answered in effect that he made Social Security a screwed up mess quite deliberately so that it could not be easily undone.

folks who voted for Social Security, way back when, were pretty solidly on the side of... [maximizing the number of people who have the opportunity to accumulate capital]Graydon

Maybe so. I always thought folks who voted for Social Security were pretty solidly on the side of increasing consumption - Keynes style - nothing to do with capital accumulation. To the extent that Social Security is a safety net it encourages risk taking which can include speculative investment

(redundancy alert - investment is speculative but obs SF as Heinlein observed you've got to play the game - so is saving)

rather than saving and so have an uncertain effect on capital formation. That is up in some cases down in others.

read Krugman on the basics Randolph Fritz

Apart from Krugman's being being a most notorious partisan on this issue - perhaps no more or less opinionated than others but certainly most notoriously partisan - I'd say the citation is not dealing with the basics but arguing for certain conclusions on the basis of facts not in evidence.

As others have noted we, almost each and every one of us, have in front of us, as we ramble on at each other, analytical powers beyond imagining or understanding.

Why don't we argue with models and data so much as we argue with opinions - be they our own opinions or expert chosen to agree with our own feelings.

Finally, of course, obsSF Toynbee Convector, we could build a golden future. I don't count on it being built as Government project.

#37 ::: Adam Rice ::: (view all by) ::: September 11, 2004, 04:10 PM:

I was born in 1965. I don't know *anyone* my age who expects to collect dime one in social security--and we're mostly a bunch of lefty-liberals.

I have always considered Social Security a flawed system. I've been self-employed since 1990, so I've been paying full-freight all that time. People with regular jobs aren't aware what a bite it's taking.

#38 ::: Larry Brennan ::: (view all by) ::: September 11, 2004, 04:37 PM:

Adam - you're observation that "People with regular jobs aren't aware what a bite it's taking." is quite correct. But they are paying just as much. Furthermore, you do get to write off half of what you put in, so you're whole as any employee, if more aware of the cost of the system.

Personally, I'd like to see the FICA rate lowered, it's scope increased to include non-wage income and the cap removed. Either that or a reasonable needs test for receiving benefits.

And yes, it is an income distribution scheme. And it's one I fully support.

My experience is colored by my recently deceased Grandmother, who thought she had a substantial guaranteed-benefit pension, but the company she worked for failed (this was in the 70's), and the funds evaporated, leaving her with equity in a house, some savings and Social Security.

Of her seven grandchildren, I was the only one with a reasonable career, and I am very grateful that resources were there for her to live independently. In her final years, she had gone through her savings and the proceeds from the sale of the house, and left with only Social Security, which, even in Florida, paying sweetheart rent to her great-niece, wasn't enough to make ends meet, and I had to send her a substantial amount of money each month to pay for her medicines.

She lived a long and productive life, and was screwed by a PRIVATE retirement system, but the public one was always there for her. As were her family and her friends.

[soapbox]
Me, I plan as if it won't be there for me, largely because civic life in the US is well on it's way to that of Brazil. It doesn't have to be that way, and we must do whatever we can to restore a sense of common purpose and civic responsibility to an increasingly self-absorbed nation.
[/soapbox]

#39 ::: jonathan vos post ::: (view all by) ::: September 11, 2004, 06:40 PM:

Please correct me if I'm wrong.

"Baby Boomer" in U.S.A. means born from 1946 through 1964.

Retirement age is now defaulted to 65.

1946 + 65 = 2011

1964 + 65 = 2029

Something will happen with Social Security benefits and/or retirement age between 2011 and 2029.

It is not necessarily the de facto bankruptcy of the USA.

It is not necessarily revolution.

I don't know what it is.

I, personally, am not afraid, even though my retirement fund was wiped out by the dotcom crash.

I have no retirement benefits from the 20+ years that I worked in the aerospace industry, because the two companies in which I collectively worked 11 years are considered 2 seperate retirement entities, and I fall a couple of months short bof vesting in each.

I ask my college students if they believe that, on retirement, the US Gov't will send them checks every month. Not one ever raises their hands. I ask if they believe in UFOs. Several raise their hands. I ask if the CIA killed JFK. Several raise their hands. I ask if the Moon landings were faked. Several raise their hands.

Generation Y and Generation Wha? seem to believe that Social Security is an urban myth.

That's my $0.02, before devaluation.

#40 ::: Larry Brennan ::: (view all by) ::: September 11, 2004, 06:56 PM:

JVP - Just because people believe a story doesn't mean it has to come true. Sure, deomgraphics are against the continuation of Social Security in its current form, but it doesn't mean that we should abandon the idea entirely. And that we can't sell the idea of the continuation of a humane, public old-age pension.

By the way, I was recently interviewed by the WSJ in an article on Baby Boomers - a label I reject, despite having been born on 12/31/64. (By the way, since it was in the paper, I'm not letting any new identity theft genies out of the bottle by mentioning my DOB here.) The last Boomer... not me! That was somebody born on 12/31/60 or so. I see myself as more of an X-er, also a label I don't like, but one that fits better.

For a pretty astute, if non-academic discussion of the characteristics of those of us born between 1961 and 1981, check out 13th Gen: Abort, Retry, Ignore, Fail? by Neil Howe and William Strauss.

#41 ::: Martin Schafer ::: (view all by) ::: September 11, 2004, 07:49 PM:

Most people already know these things, but given some of the comments I'm going to go through a few basics. First, federal budget, here's a link for far more info than you want...

http://www.whitehouse.gov/omb/budget/fy2005/pdf/hist.pdf

But to summarize, for 2003 the federal government spent 21.8 percent on social security, 14.2 percent on means tested mandated payment(which includes Medicaid, food stamps, AFDC, SSI, EITC, child nutrition, and a half dozen other bits), 21.2 on other mandated payments (mostly medicare), 6.7 percent on interest, 18.8 percent on defense, and 19.5 percent on everything else.

All the corporate welfare, and agricultural subsidies, and rampant pork, that is what most people mean by waste and fraud, in buried in that 19.5 percent, along with road building, and running the federal court system, and Pell grants, and NIH, and CDC, and so on and so forth. Sure, there are a lot of loathsome tics sucking on the body politic, but what they are taking is peanuts compared to the money that is going to people to solve real problems.

Second, social security is amazingly efficient.
Here's another link ...

http://www.ssa.gov/pubs/10035.html

The administrative costs are less than one percent, you won't find a private pension fund that does better.

Finally, social security is not an investment, the money you get back is not the money you put in plus what the government managed to make for you, and, while it does have this effect, social security is not an income transfer program. That's why it's not means tested. Social security is a risk pooling program, like any other sort of insurance.

Risk pooling works best for society when everyone can and must to participate. If you let people decide whether to join the low risk groups opt out and the cost for everyone goes up. If you let the entity paying the benefit exclude people, it will exclude the highest risk group, those who most need the program.

Sure there is some correlation between qualities society wants to encourage, like industry, prudence and delayed gratification, and membership in the low risk group here. But there are plenty of ways that society rewards those qualities. It doesn't have to be part of every program. Perhaps it comes down to, do you not only believe in eternal torment if you screw up in this life, but do you think that was one of God's better ideas?

#42 ::: Alan Hamilton ::: (view all by) ::: September 11, 2004, 07:59 PM:

The retirement age is going up to 67 for guys like me.

The anti-tax folks try to paint it as if all our taxes were going to preverted art, snail studies, welfare for lazy slobs, and aid to ungrateful foreigners. In fact, ¾ of the federal budget goes to the military, Social Security, and Medicare. To make significant cuts to government spending, big cuts would have to be made to some or all of them. Good luck running on that platform.

#43 ::: Randolph Fritz ::: (view all by) ::: September 11, 2004, 10:07 PM:

Alan, that's why the Bushies racking up so much debt--they want to set up a situation where they can claim that cutting social programs is necessary. Exactly what they're going to do when unexpected expenses hit, I have no idea--leave it to the Democrats to fix, I expect.

Steve, I suppose what I'm getting at is that a government that's willing to let elders fall into poverty, starving many of them, is also not going to care a fig about your savings. Think! Did the Bushies make any effort to replenish the savings stolen by the Enron top management? In fact, if this lot can figure out a way to give your money to one of their cronies, be sure they will. It's not either Social Security or private savings; it's either Social Security and private savings, or nothing.

#44 ::: Alex von Thorn ::: (view all by) ::: September 11, 2004, 10:58 PM:

The concept that "By the time you retire, there’ll be nothing left in the Social Security retirement fund" is actually two separate arguments, I believe.

One is from the people who favor Social Security reform. For them the sentence ends "if nothing changes." Plug the numbers into a spreadsheet and the demographics and finance trends show the fund coming down to zero. They are arguing against the no-changes complacency of people on both sides of the political spectrum, the ones who think it's easier to worry about the problem until after the next election (always the next election, not the current legislative session). Obviously it would be a political non-starter for the social security system to go bankrupt while people are paying into it, so the problem is going to have to be addressed. They're just saying the pain of change will be less the sooner it starts. Increasing the age of mandatory retirement and/or increasing the proportion of payroll that goes into social security are the obvious solutions.

The other flavor of this argument is government-can't-do-anything social darwinism that the Republicans use in every economic debate. Since government isn't going to accomplish anything, why pay for it? This also relieves them of responsibility for the poor and elderly: if the government can't possibly do anything, then there's no reason for it to try. Extended families can take care of each other, and devil take the hindmost.

But it's not just about economics. Social Security is a social contract. People are paying into the system, and they expect to get paid back, and that means that if the system goes bankrupt, it's not going to end, it's just going to go into deficit and the general budget will have to make up the shortfall. The trouble is that too many politicians have no awareness of the future beyond the event horizon of their next election. As science fiction fans, it's our duty to remind them.

But just to be on the safe side, we need to look to our personal futures as well. People should be saving as much as they can for retirement. One has to put the better part of a million dollars aside to have a reasonable lifestyle after one's career.

#45 ::: mythago ::: (view all by) ::: September 12, 2004, 12:57 AM:

It's just that in my experience, government is a combination of predator and parasite

All that stuff about making sure you have running water, guaranteed mail delivery, inspected meat, regularly-policed communities, an operational justice system, air-traffic control, etc. etc. is just a lure to get you to hand over your paycheck to the predators, eh?

johnathan, don't even get me started about the underfunding of pensions. I'm not sure if anyone has actually uncovered a corporate document saying "Who cares? By the time they sue us they'll all be old and dead," but it wouldn't surprise me.

I'm not afraid of losing Social Security, because I never expected to receive a dime from it and thus never have and never will rely on it for retirement.

#46 ::: Steve Eley ::: (view all by) ::: September 12, 2004, 01:45 AM:

Randolph Fritz:
Steve, I suppose what I'm getting at is that a government that's willing to let elders fall into poverty, starving many of them, is also not going to care a fig about your savings. Think! Did the Bushies make any effort to replenish the savings stolen by the Enron top management?

You've got everything backwards, Mr. Fritz. The Enron bastards committed a lot of criminal acts, but they didn't steal anyone's savings -- what they did was jack the price of the stock up artificially, and rig the 401(k)s so they were topheavy on the company stock, leaving nothing behind when it collapsed. I'm not sure what you think "the Bushies" were obliged to do about it -- it wasn't the government's money.

I'm not sure you understood my earlier point about my own savings. I'm not resting my future on one precarious stock or one precarious government instrument. My index funds represent the bulk of the economy of the entire world. And I have them at multiple brokers. It'll have ups and downs, of course. But the historical trend is up, and I have 30 years before I expect to use any of the money.

Could the government take this away? Yes, it's possible that they could. They could shut down Vanguard, or they could announce that no one gets to buy foreign stock anymore, or a new 50% tax on all IRAs, thank you, here's your receipt. They could do this any morning they choose -- and the nation's economy would be plunged into chaos before lunch. There's a certain level of trust in the rule of law that allows finance to occur, and breaking that trust breaks finance. Break finance, and you break the modern world.

Is it possible that the government could commit spectacular suicide in this fashion? Sure. Does it worry me? Not really. Given the odds that a President will destroy the private equities market and the banking industry, or that a President will slowly suck the life out of Social Security by screwing with it for the umpteenth time -- well, I wouldn't put all my money against either one, but if I had to hedge my bets I know which one I'd be more worried about.

#47 ::: Daniel J. Boone ::: (view all by) ::: September 12, 2004, 02:19 AM:

All that stuff about making sure you have running water, guaranteed mail delivery, inspected meat, regularly-policed communities, an operational justice system, air-traffic control, etc. etc. is just a lure to get you to hand over your paycheck to the predators, eh?

Hmmm. I grew up, and my father still lives, in an American place that doesn't have the first four items on that list, but it's still a civil and pleasant community. We don't have the fifth anywhere in the United States, and I can't use the sixth without submitting to a search so intrusive as to destroy basic human dignity.

So, more a lie than a lure, actually.

But your point is, nonetheless, a good one. Ploughing a tiny percentage of the loot back into a looted community does tend to grease the skids and make continued looting easier. Even Mafia dons, I am told, were known to donate generously to local charities.

#48 ::: Randolph Fritz ::: (view all by) ::: September 12, 2004, 03:01 AM:

Steve, the exective has the job, given by Congress, of preventing fraud in the securities and energy markets, via the SEC and the FERC. They abandoned both these responsibilities, to allow their cronies at Enron (and many other firms) to line their pockets.

You talk about your mutual funds. Now, if you go to your annual reports, you will find, at the end of those reports, a statement that the report is accurate according to generally accepted accounting practices. A similar statement was at the end of Enron's report. It was false, of course; Arthur Anderson had been suborned by Enron managment. And the SEC, whose job it was to make sure that major securities fraud did not occur, had been taken off the job by a series of neo-conservative administrations.

Libertarians often say that the market will prevent collapses like that of Enron, that savvy investors will know better. In fact, most investors, even the most knowlegeable, were taken in. This is typical in securities markets. It has happenned over and over again over the years; it's why the SEC exists, in fact. Nor was it just Enron. The collapse of Enron was followed by a series of even larger collapses. "Bad money drives out good"--when fraud is allowed in securities markets, it quickly becomes rife and the stocks of honest companies are undervalued--sometimes honest companies even fail for lack of capital. It isn't the failure of the failure of the world economy you need be concerned with--it's the failure of the auditors. How far do you trust your funds's management? And why?

#49 ::: Larry Brennan ::: (view all by) ::: September 12, 2004, 03:31 AM:

One small point - Steve has said that he's in index funds, which are not really managed funds at all, and are therefore subject (at least theoretically) only to the systematic risk of the market. Therefore, he should be buffered against individual corporate frauds, but not against systematic fraud in the marketplace. And there's no real fund manager - trading is based on changes in the components of the underlying index, and on the number of fund shares purchased or redeemed on any given day. The current fraud scandal in mutual funds has more to do with honoring buy/sell orders generated after the markets have closed and the new NAV is struck.

But, remember that the market price of a security is determined by a buyer and a seller. To the extent that a company has created a false picture of its business conditions, they are perpetrating a fraud against anyone with a long position in their stock. So, while Enron may not have directly stolen from their investors, they certainly did defraud them. They're only stealing if they sell shares or engage in other trading activities that are like, but not quite, a sale.

It's the role of the SEC to make sure that such things don't happen, and, when the system fails, to take precautions against such things happening again. Under the current administration, we've gotten Sarbanes-Oxley, which seems mostly to have been a device to generate revenue for the very same group of companies (the Big now-fewer-than-5 accounting firms) that were complicit in the fraud to start with.

The overseers are, basically, on holiday, clearing the brush on the ranch while corporate terrorists are targeting our nest eggs. I don't have any secrets for safe investing. I just want some grown-ups running the regulatory agencies. Our future prosperity depends on it.

#50 ::: mythago ::: (view all by) ::: September 12, 2004, 10:33 AM:

and I can't use the sixth without submitting to a search

And this is why so many people see taxes as theft: like children, they believe things just work as if by magic unless they, personally, are involved enough to see those workings.

So air-traffic control only exists when one gets on a plane; there's no awareness of an entire system devoted to keeping planes from crashing into one another, making orderly arrangements for when they are flying and where they will land, and so on. The planes just go magically where they're supposed to go and nobody has to pay a dime.

And if any of those invisible systems turn out to be imperfect--well, that's clear evidence that they don't work at all, and should be abolished, and in any event we shouldn't have to pay for them. (Why, I'm sure that Enron Postal Co. would deliver mail everywhere for half the price!)

I often wonder why the Goverment Fails folks live in the U.S., with all its bureaucracy and terrible laws. Surely there are plenty of places in the world where you don't pay taxes, because there are no oppressive laws requiring that "Prime Beef" in the store actually come from a cow, or prohibiting you from driving after you've downed a fifth of good Scotch. Utopia awaits, tax-loathers!

#51 ::: Barry ::: (view all by) ::: September 12, 2004, 12:34 PM:

"Apart from Krugman's being being a most notorious partisan on this issue - perhaps no more or less opinionated than others but certainly most notoriously partisan - I'd say the citation is not dealing with the basics but arguing for certain conclusions on the basis of facts not in evidence."

Is 'notorious partisan' anything like 'shrill'?
I find this an interesting phrase.

#52 ::: Randolph Fritz ::: (view all by) ::: September 12, 2004, 02:02 PM:

Larry, I've owned an index fund that was quietly converted to a managed fund (I got out). Also, index funds can be looted--just cause it says "index fund" on the label doesn't mean it is one, or is trading honestly. If it comes to that, sufficiently bad accounting can lead to firms like S&P putting the wrong stocks in their indicies.

I am amazed I need to say that I was using "stolen" loosely for directness, rather than the more awkward "taken through securities fraud".

Clark, though that Krugman article has a position, a lot of basics are in there. Krugman writes polemics like an economics professor teaching Econ 101--it amazes me that anyone calls him shrill.

#53 ::: Faren Miller ::: (view all by) ::: September 12, 2004, 02:23 PM:

The San Francisco Chronicle's online edition has an article directly related to the Social Security issue: http://sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2004/09/12/MNG2S8NOI21.DTL

It is quite horrifying, even though I'm another person who never expected to see a dime after my "retirement". Between the material in that article, the NY Times piece on Donald Trump, and various recent considerations of the Jihad Age we have now entered, I can only think we're near the end of the latest version of Imperial Rome, with a very strange high tech-cum-fundamentalism Dark Age to follow. (The featured piece on possible futures in Locus Online didn't cheer me up any, pace Kim Stanley Robinson.)

So that's my mood piece for the day.

#54 ::: Larry Brennan ::: (view all by) ::: September 12, 2004, 02:51 PM:

Randolph - You're right. Caveat emptor applies to index funds as much as to anything else. Read those prospectuses (prospecti?). Also, If your index fund has a management fee north of 1%, find another fund, or consider buying SPDRs or DIAs. (But watch out for transaction fees.)

As far as the theft vs. fraud thing, that was directed more at Steve. And the answer to "I'm not sure what you think "the Bushies" were obliged to do about it -- it wasn't the government's money, " is that they were supposed to monitor the market for suspicious activities that might indicate fraud and investigate appropriately. Not have their hand-picked regulators at FERC and the SEC willfully deny that there was any fraud taking place until all the money to be stolen had been stolen.

One of the things that makes a society work is a system of laws that protect property rights. (And personal freedoms, but thats' a different discussion.) These guys are incompetent, even at the things they should care about, and should be good at.

#55 ::: adamsj ::: (view all by) ::: September 12, 2004, 02:52 PM:

Randolph says:

I am amazed I need to say that I was using "stolen" loosely for directness, rather than the more awkward "taken through securities fraud".

How can it be theft when the securities industry does it? Isn't that a contradiction in terms?

By the way, what happens to an index fund when one company is dropped from, say, the Dow, and another brought in? The value of the index is readjusted, I know that, but what happens in the funds?

#56 ::: Larry Brennan ::: (view all by) ::: September 12, 2004, 03:05 PM:

By the way, what happens to an index fund when one company is dropped from, say, the Dow, and another brought in? The value of the index is readjusted, I know that, but what happens in the funds?

Funds have to sell their shares of the company removed from the index and replace them with shares of the new company. This is a fairly difficult process, as all of the block trades hitting the markets at roughly the same time causes the old security to drop in price, while th new one has a spike. I don't know the details, like how long they have to complete the transition - finance classes were too long ago. Anybody on the buy-side out there?

#57 ::: Randolph Fritz ::: (view all by) ::: September 12, 2004, 03:27 PM:

"Read those prospectuses."

Larry, you are not being, ah, market-savvy enough. The prospectuses are only as good as the SEC requires them to be.

Faren, I do think our current political situation is an abberation, rather than a permanent disaster. The article you've linked is a scare story--try Krugman instead. But it's going to be a rough century.

#58 ::: Larry Brennan ::: (view all by) ::: September 12, 2004, 03:44 PM:

Randolph - A fund that invests more than 1/5th of its funds outside of its stated goal is out of compliance, and it needs to amend its prospectus to reflect its new goals. You'll get a notice in the mail if this happens. If not, the fund manager is in risk of becoming a guest of the Federal Bureau of Prisons.

SPDRs and such are the best way to "buy the market." You're making a trade-off between transaction fees and the exposure to capital gains that is peculiar to mutual funds. (Not an issue for 401ks and other pre-tax accounts.)

By the way, I am not an investment advisor, and this is not intended in any way to be investment advice. If you run out and buy a bunch of SPDRs, and it turns out that the market tanks or that the issuer has committed massive fraud and you wind up losing money - don't blame me.

#59 ::: clew ::: (view all by) ::: September 12, 2004, 04:02 PM:

The other thing about index funds is that, if stock market prices reflect the actual value of underlying stocks, they're said to do so because of the attention to that underlying value paid (if indirectly) by all the buyers and sellers. As far as I can tell investing in index funds is therefore free-riding on active traders, which doesn't strike me as particularly immoral, just imprudent; insofar as it's better than trading, more and more people will pile into it, stock prices will become less accurate as measures of the value of the company, and more stocks will fail and have to be sold in a hurry.

I'm sure there's some way to profit by encouraging index investment and shorting.

#60 ::: Larry Brennan ::: (view all by) ::: September 12, 2004, 04:13 PM:

clew - Security prices are determined by the marginal trader - meaning the last person or institution to make a trade. There's no free riding happening here, and index fund investing has no impact on the value of the underlying securities, except to the extent that the index fund becomes the marginal trader and sets the price. (Think supply and demand.)

Mutual funds actually need to own the securites that set their NAV. They're among the most active traders on Wall Street. If people pile in to index funds, their money gets invested in underlying shares. All that a mutual fund does is outsource trading from the individual investor to the fund manager.

Clever idea, though.

#61 ::: Steve Eley ::: (view all by) ::: September 12, 2004, 04:20 PM:

Larry Brennan wrote:
As far as the theft vs. fraud thing, that was directed more at Steve. And the answer to "I'm not sure what you think "the Bushies" were obliged to do about it -- it wasn't the government's money, " is that they were supposed to monitor the market for suspicious activities that might indicate fraud and investigate appropriately. Not have their hand-picked regulators at FERC and the SEC willfully deny that there was any fraud taking place until all the money to be stolen had been stolen.

You're absolutely right. The government screwed up immensely on Enron. Whether it was Bush being complicit, or simple incompetence (I lean toward Hanlon's Razor on this one), several government agencies should have done their jobs and didn't. In fact the last time I posted in this blog before this thread was in the Enron topic, arguing with the folks who were sure that Ken Lay would never be arrested as long as Bush was in office. (He was. QED.)

This is all irrelevant to the point I was responding to, from Randolph Fritz: "Think! Did the Bushies make any effort to replenish the savings stolen by the Enron top management?" His question was groundless because:

A.) Savings weren't stolen; and

B.) There is no government agency responsible for putting money back into 401(k) accounts when those 401(k) accounts lose value. Government has a lot of functions related to securities and investment, but that's not one of them.

I think you and I are both on the same page here. Yes, shit happens in the financial sector. Yes, government regulation of the financial markets is, on the whole, a Good Thing. No, I'm not putting 100% of my trust into Vanguard or Citistreet or TIAA-CREF. Just most of my trust. If they do collectively turn out to fail, the extent to which we're screwed will extent far beyond my own savings.

I think the only point on which I fundamentally disagree with anyone here is the notion that it makes less sense to put much of my trust for my own future into the market than it makes to put all of my trust into the federal government. And this from many of the same people who carry deep, soul-moving despite for the current executive branch.

#62 ::: Steve Eley ::: (view all by) ::: September 12, 2004, 04:25 PM:

Oh, and one other point, back on Social Security for a change:

The idea that's being disputed here isn't just coming from the shallow end of the meme pool. Greenspan has also been saying Social Security is in deep trouble, and that its days in its present incarnation are numbered, and he's presented evidence to that effect. Since Greenspan's probably the one high-profile figure in government who can say unpopular things without getting fired or losing elections, there's no telling how many other folks in charge may be thinking it.

#63 ::: JS ::: (view all by) ::: September 12, 2004, 04:37 PM:

It's something that'll only happen if the people in power decide to make it happen.
This is where the fear tries to come in, for me: I believe that if we don't change course, this is exactly what will happen. I haven't given up on a change of course, though. Then I'd have to stop getting out of bed in the morning.

#64 ::: Mike Kozlowski ::: (view all by) ::: September 12, 2004, 05:37 PM:

Steve, you seem to be mistaking the scale of advice being offered here. You are wise to act as if you believe Social Security will not exist -- when I do my planning, I use that assumption, too. But you are being played if you actually believe that it will not exist, because there's no particular reason for that to be true. Plan for the worst, sure, but don't let people convince you that the worst is inevitable.

As for Greenspan, well, even supposedly non-political figures in government have political views, and it's no secret that Greenspan is/was a devotee of Ayn Rand. I mean, look, he said that Bush's tax cuts were affordable and fiscally responsible, and then not much later said that Social Security was in dire straits. These are essentially irreconcilable statements.

#65 ::: Steve Eley ::: (view all by) ::: September 12, 2004, 05:54 PM:

Mike Kozlowski wrote:
As for Greenspan, well, even supposedly non-political figures in government have political views, and it's no secret that Greenspan is/was a devotee of Ayn Rand.

That's a political view? What office did Ayn Rand hold? I thought it was a philosophical view. (And a pretty ironic one, considering what Greenspan does.)


I mean, look, he said that Bush's tax cuts were affordable and fiscally responsible, and then not much later said that Social Security was in dire straits. These are essentially irreconcilable statements.

How so? Serious question here. Bush didn't cut FICA, did he? I know the dividing line between Social Security and the general budget has become more and more fictional (which is one of its biggest problems, IMO) but I was not aware that Bush's cuts have resulted in any less money going to Social Security. I do think that Bush is extremely fiscally irresponsible, but not for that reason.

#66 ::: Steve Eley ::: (view all by) ::: September 12, 2004, 06:05 PM:

Oh, and I didn't mean to skip the earlier part:
Steve, you seem to be mistaking the scale of advice being offered here. You are wise to act as if you believe Social Security will not exist -- when I do my planning, I use that assumption, too. But you are being played if you actually believe that it will not exist, because there's no particular reason for that to be true. Plan for the worst, sure, but don't let people convince you that the worst is inevitable.

Hey, if I'm wrong and I can benefit from Social Security, I'm thrilled. Getting money I won't need just leaves me free to do better things with it, such as supporting causes I care about.

But if I'm wise to act as if Social Security won't exist, what difference does it make what I actually believe? Do my thoughts put me at some practical disadvantage? It's not a significant source of stress in my life; in fact I rarely think about it except when arguing in people's blogs. So how am I "being played?"

#67 ::: Larry Brennan ::: (view all by) ::: September 12, 2004, 06:46 PM:

Steve - the point is that taking away Social Security is something that requires the consent of the public. The more people who believe the story that any form of public pension is a bad idea, the more likely we are to face a very sad future for a substantial proportion of the population.

Please note that I'm not saying that anyone should rely completely on Social Security for their retirement. But, there are people who will not have that choice, especially those who lose their medical benefits and have the misfortune of getting sick. Or people with physical or mental handicaps. Or people who have simply been on the receiving end of a run of bad luck.

Our safety net is already weak. By accepting the inevitability of its destruction, we become complicit in the decay of our society. A society without some form of Social Security is not one that I'd care to live in. You're free to disagree, of course. Just be aware of the consequences.

#68 ::: Larry Brennan ::: (view all by) ::: September 12, 2004, 06:50 PM:

That's a political view? What office did Ayn Rand hold? I thought it was a philosophical view.

Hmmm. I wasn't aware the politics and philosophy were completely disjoint. I'll have to bear that in mind.

/snark

#69 ::: mythago ::: (view all by) ::: September 12, 2004, 08:03 PM:

Larry, there is a difference between planning one's own life as though Social Security will not exist, and shrugging off the specter of its non-existence for others.

Do I believe its doom is inevitable? No. Do I believe it will be looted and killed by the generation before mine? Yes. Does that mean I will let it go quietly? Hell no.

#70 ::: Larry Brennan ::: (view all by) ::: September 12, 2004, 08:13 PM:

Mythago - agreed, 100%

I, too, plan as if there will be no Social Security when I retire. And I will do whatever I can to preserve it, not so much for myself, but for the overall benefit of society.

#71 ::: Linkmeister ::: (view all by) ::: September 12, 2004, 08:22 PM:

One other thing about St. Alan that's often forgotten: he was the guy who persuaded everybody that FICA needed to be increased back in the 80s in order to cover all us boomers, and now he's been complicit in the Bush tax cuts to the point where the SocSec fund is depleting faster than expected. So now he says "cut the benefits; raise the age." He doesn't say "oops. Those cuts were a mistake and should be reversed; then my initial predictions will go back to being accurate."

He's not the benign guru Woodward and the markets made him out to be back in the 90s, is what I'm sayin'.

#72 ::: Brett Matthews ::: (view all by) ::: September 12, 2004, 09:19 PM:

By the time I retire, I believe that there'll be plenty of funds flowing into the Social Security retirement fund. I'm in the "last of the boomers" category—with a few decades of work remaining before retirement. A lot can happen in 20 years.

First, when any system (biological, social, economic, etc.) fails, and is no longer stable, external pressures or fluctuations tend to throw the system out of balance until there is a complete breakdown in the internal structure of the system. A new simplicity emerges from within the old system, marking an evolutionary jump in the "progressive" structure of the system.

So what might that possibly mean… Well, the two-party political system we now enjoy is totally broken and quite unstable. Diminished resources are wasted on pork, popular legislation never reaches the floor (assault weapons will be available again in a few hours), and power resides not on the left or right, but on Wall street. It can't continue, as we are rapidly running out of resources. The extreme polarity in the political structure is out of balance, and a new political system will unfold from within the old.

People are living longer, while younger people are having less children. The future Gray-haired boomers will have a substantial voting block. By then, the complexities of the two-party system will have given way to a simple plural-party system with the Greens and the Grays having as much power as the Donkeys and the Elephants. Personally, I will have a foot in the Green party and a foot in the Gray party—and all my boomer friends will also have a foot in the Gray party—and all my artist friends will have a foot in the Green party. Perhaps the Greens and the Grays will form an alliance and we will rule America. They will call us the "G's."

With our old age will come wisdom, and the G's will tax the hell out of the corporations because we want a nice planet for our grandchildren. We will have the power, and power begets power, and we will take care of ourselves. So I am not really worried about Social Security.

#73 ::: Randolph Fritz ::: (view all by) ::: September 12, 2004, 10:23 PM:

"A fund that invests more than 1/5th of its funds outside of its stated goal is out of compliance, and it needs to amend its prospectus to reflect its new goals. You'll get a notice in the mail if this happens. If not, the fund manager is in risk of becoming a guest of the Federal Bureau of Prisons."

Assuming there is enforcement of that law. Which is exactly the point, not so?

#74 ::: Randolph Fritz ::: (view all by) ::: September 13, 2004, 01:03 AM:

Steve, through securities fraud, Enron management enriched itself and impoverished its employees who had been--fraudulently--encouraged to over-invest in Enron's stock. While that is not technically theft--I wonder what the proper name for that crime is--I do think that a fair punishment would be to return the ill-gotten gains to the employees. But I think we both know that the W. Bush administration would never so directly rebuke wealth.

"I think the only point on which I fundamentally disagree with anyone here is the notion that it makes less sense to put much of my trust for my own future into the market than it makes to put all of my trust into the federal government."

I do not understand why you seem to believe that you have any "future in the market" without the support of the federal government. Or am I misreading you?

#75 ::: Derek Lowe ::: (view all by) ::: September 13, 2004, 09:47 AM:

Brett Matthews: "Perhaps the Greens and the Grays will form an alliance and we will rule America. They will call us the "G's."

With our old age will come wisdom, and the G's will tax the hell out of the corporations because we want a nice planet for our grandchildren."

Hmmm. Are you familiar with the view that corporations are largely collectors of taxes, rather than payers of taxes? Their increased costs are, whenever possible, passed along to their customers. . .

#76 ::: Steve Eley ::: (view all by) ::: September 13, 2004, 09:52 AM:

Randolph Fritz:
I do not understand why you seem to believe that you have any "future in the market" without the support of the federal government. Or am I misreading you?

Okay, I'll rephrase: I think the only point on which I fundamentally disagree with anyone here is the notion that it makes less sense for me to manage my own financial future through moderately conservative private investment than to allow a federal program of wealth redistribution to manage my future for me.

Is that clearer?

#77 ::: Steve Eley ::: (view all by) ::: September 13, 2004, 09:58 AM:

Brett Matthews wrote:
Hmmm. Are you familiar with the view that corporations are largely collectors of taxes, rather than payers of taxes? Their increased costs are, whenever possible, passed along to their customers. . .

Exactly. Corporations don't pay taxes. For that matter, corporations don't own wealth.

#78 ::: mayakda ::: (view all by) ::: September 13, 2004, 10:07 AM:

I'm very simple minded, but here's how I understand it.
Social Security really seems like a government pyramid scheme, on some level. Money is paid out to eligible members by the currently employed. The viability of the scheme depends on the ability to collect enough money now to cover what is being paid out now. If they cannot collect enough money there is a problem. Reasons they cannot collect enough meonye include one or all of the following:
- number of eligible members rises sharply (exhibit A: Baby Boomers)
- number of employed decreases sharply due to economic downturn (cough*offshoring*cough)
- number of employed decreases sharply due to population decline (not a problem here so far, although it is in some European countries)
- funds are misappropiated by governement (I have no idea if this happens)

Any other factors?
Glaring errors or ommissions?

#79 ::: Jonathan Vos Post ::: (view all by) ::: September 13, 2004, 10:25 AM:

Brett Matthews:

I am most interested by your saying:

"First, when any system (biological, social, economic, etc.) fails, and is no longer stable, external pressures or fluctuations tend to throw the system out of balance until there is a complete breakdown in the internal structure of the system. A new simplicity emerges from within the old system, marking an evolutionary jump in the 'progressive' structure of the system."

Based on the past few international conferences on Behavioral & Organizational Sciences which I attended to give papers, what you say is almost universally believed but no one has advanced a Quantitative causal theory which shows HOW an organization evolves new structure in response to internal and/or external "pressure."

Larry Brennan:

Your comment on my first posting of this thread is correct. I switched from arithmetic facts to hearsay from my students, which is merely about their beliefs, not necessarily true.

So far, the Federal Government swindled my family out of 2 generations of Estate Taxes. My father's father, who Horatio Algered himself from penniless immigrant to owning a seat on the NY Stock Exchange, had over 50% of his wealth confiscated when he died, and his wife had another 50% taxed when she died, leaving a much thinner slice for my father's Trust (1/3 mine in next generation) and my father's sister's trust (she is now deceased, and her 4 remainder beneficiaries have their fragments). I am enough of a Conservative to wish that my grandfather's earnings had not been social engineered away, and enough of a liberal to accept some "fair" level of taxation in the short run, though I don't think we have had "fair" since the permanent income tax started in 1913 or thereabouts, at 1/2 of 1%, with promises on the floor of Congress that it would not likely go higher.

So I've had to start from scratch. The Feds helped me a LOT with the National Student Loans, which got me 3 university degress which I could not otherwise afford.

Up through the Moon landings of Apollo, I thought the Federal Government was doing a good job in Space. Now I've come to accept Jerry Pournelle's view on the nonfuture of NASA, and think that private enterprise should run the show, while we cooperate/compete with the Europe, Japan, Russia, China, India, Brazil... in space.

I frankly expect SMALLER than promised checks in the mail when I nominally retire, at a date later than originally planned.

I read the Social Security data deeply in places, and am most perturbed that their own figures show under 2% of Americans age 65 or older are adequately living on Social Secuirty (and order of magnitude less than those supported by family, or those supported by church or the like, or those still working). 2% are caught by the safety net now; 98% slip through. I expect those figures to get worse.

I do agree with Teresa on her fundamental point, though. DON'T let the Government or Press fill people with FEAR. DO believe that humans can fix most of what humans break. Do think positive. Read and write both Utopia and Dystopia, and then work to make the Utopian choices higher in implementation priority.

#80 ::: Avedon ::: (view all by) ::: September 13, 2004, 11:16 AM:

Clark E Myers, Krugman is only "notoriously partisan" because the right-wingers keep saying he is partisan. The reason for this is that he is critical of Bush's departure from Krugman's relatively conservative economic views. This is not partisanship, it's merely disagreeing with Bush's policies.

Given how extreme the Bush administration has been, it is not surprising that most Democrats and a considerable number of Republicans disagree with Bush's policies. That's not partisanship, either. If you hold views, and you disagree with someone else's views, you don't get to call it "partisan" just because the someone else happens to be Republican. Most Republicans have also traditionally disagreed with the kinds of policies Bush is responsible for.

Krugman was critical of Clinton when Clinton was president. Now he is critical of Bush. That's non-partisan. But the RNC seems to have re-defined "partisan" to mean, simply, "critical of Bush."

Larry Brennan, I assume you already know this, but nevertheless feel obliged to point out that Social Security payments weren't always this high. I certainly agree that the cap should be removed and that it should also be applied to unearned income. But one of the big secrets of this debate is that the baby-boom of the '90s was actually pretty huge, some say larger than the official Baby Boom. I'm not convinced that there is any demographic reason to expect our Boomers to bankrupt the system. (And, as someone who was born in '51, I still find it very difficult to accept that anyone born after 1960 is One Of Us, btw.)

Steve Eley: Greenspan's pronouncements on Social Security have an, um, interesting history - and let's not pretend he's an unbiased reporter, okay?

#81 ::: Larry Brennan ::: (view all by) ::: September 13, 2004, 01:10 PM:

JVP - You're right, I was talking about your having related your student's subjective beliefs, but not in any way as a criticism.

The point I was making is that beliefs, even, or perhaps especially in the absence of objective data, are very powerful things. Powerful to the point that people will reject objective data that challenge their beliefs. Powerful enough that people will attack the messenger, and ascribe all sorts of malicious motivations to purveyors of data.

Remember the Scopes Monkey Trial? We're still having that debate, even though evidence supporting evolution has only gotten more compelling. Let's not let "Social Security Must Die" become a secular version of creationism.

Avedon - yep rates used to be lower, and I remember them. I've had to work, out of sheer economic necessity, since I was 17. Part of what I suggested was to lower the rates, as well as broadening the base. FICA is extraordinarily regressive - making it merely flat, and less costly to the majority of payers, is a pretty good idea, and one that would save the system. Of course, that's class warfare, isn't it?

#82 ::: Larry Brennan ::: (view all by) ::: September 13, 2004, 01:26 PM:

JVP - and with regard to estate taxes. I'm sorry for the very personal impact that they have had on your family. Like other taxes, they need to be faiir, progressive, and hard to shelter assets from.

The desire to provide for your offspring is biological, and very deeply seated. This is what made the "Death Tax" story so very compelling. The form that the federal estate tax took before they were repealed seemed pretty fair, with a high asset threshhold before any tax was due. I don't know the details, because no one in my family has ever been wealthy enough to trigger it.

Of course, every time I see Paris Hilton on TV (which is usually for only as long as it takes for me to find the remote and dispatch her back into the ether) I long for a sufficiently confiscatory estate tax that would force her to support herself on the basis of her talents, not on the accident of her birth.

#83 ::: Steve Eley ::: (view all by) ::: September 13, 2004, 01:39 PM:

Larry Brennan wrote:
The form that the federal estate tax took before they were repealed seemed pretty fair, with a high asset threshhold before any tax was due. I don't know the details, because no one in my family has ever been wealthy enough to trigger it.

As best I understand it, the real harm done by the estate tax wasn't in cash. It was in the probate and liquidation risk of family businesses and farms, if the owner wasn't savvy enough to incorporate or take other measures to protect it. It's entirely possible for a family to have a million dollars in farmland and be scraping to get by. Losing the farm to taxes is not the solution.

Of course, every time I see Paris Hilton [...] force her to support herself on the basis of her talents, not on the accident of her birth.

That's an unusually roundabout way to wish someone dead. >8->

#84 ::: Larry Brennan ::: (view all by) ::: September 13, 2004, 01:53 PM:

Steve - If you have a million dollars worth of farmland and are just scraping by, perhaps the answer is to sell the farmland and invest the million dollars elsewhere. If the land is really worth that $1MM, somebody else should be able to get a decent rate of return on it.

If the million dollars worth of farmland secured, say, $900k in debt, it certainly wouldn't have triggered any estate tax.

As far as the business risk of estate taxes go, nobody is there to coddle me if I fail to plan effectively. Why should I coddle a family business that has planned poorly? (Yes, there are capital-intensive small businesses, and there ought to have been a way to adapt the tax system to make things easier for them. Abolishing the tax just wasn't the way to do it.)

As far as Paris Hilton goes, I hadn't really thought about it that way... ;-)

#85 ::: Elisabeth ::: (view all by) ::: September 13, 2004, 02:25 PM:

Anyone interested in what will happen to Social Security, the US budget and economy, Medicare, etc. should read The Coming Generational Storm by Laurence Kotlikoff and Scott Burns, published by The MIT Press earlier this year. Kotlikoff is a very well-respected economist who reminds us that the world doesn't end after the 75 years of the projections someone mentioned. Every year after 75 you include in your projection multiplies the shortfall.

A study commissioned by Paul O'Neill (before being fired as US Treasury Secretary) calculated the US government's fiscal gap: the difference between the present value of the government's future income and expenditures, making various assumptions, using various projections, etc. The study's authors came up with a $45 trillion dollar shorfall (it's now up to $51 trillion, thanks to the Medicare drug benefit). They also came up with what it would take, starting immediately, to pay that $45 trillion off. Here are our choices (The "Menu of Pain"):

*A 69% increase in federal income taxes
*A 95% increase in payroll taxes
*A 106% cut in federal expenditures
*A 45% cut in Social Security and Medicare

This report was initially (before it came in) supposed to be included in W.'s 2004 budget. It didn't make it, but you can read it here:

http://www.aei.org/docLib/20030723_SmettersFinalCC.pdf

Happy reading. The Kotlikoff book is actually a fairly easy read for what it is--he's very good at explaining difficult economics and accounting concepts and has a fair amount of humor. It was favorably reviewed in the WSJ, and has cover blurbs from five different Nobel laureates in economics. So it ain't no shabby work.

#86 ::: Barry ::: (view all by) ::: September 13, 2004, 02:35 PM:

I thought that the supporters of the 'death tax repeal' had not been able to come up with a single case of a family farm being sold or broken up because of it?

#87 ::: Randolph Fritz ::: (view all by) ::: September 13, 2004, 05:14 PM:

"Are you familiar with the view that corporations are largely collectors of taxes, rather than payers of taxes? Their increased costs are, whenever possible, passed along to their customers. . ."

But it is not always possible; sometimes they have to find cheaper supplies or (whisper it) pay out lower profits. Taxes are no different than any other business expense in that.

"Social Security really seems like a government pyramid scheme. [...] Money is paid out to eligible members by the currently employed. The viability of the scheme depends on the ability to collect enough money now to cover what is being paid out now."

Social Security is a transfer payment system; it is similar, on a very grand scale, to the way a family with the resources to do it supports its elders. In a pyramid scam, enormous returns are promised investors, which are then paid from the much larger number of later investors, until the whole thing runs out of money.

"[...] it makes less sense for me to manage my own financial future through moderately conservative private investment than to allow a federal program of wealth redistribution to manage my future for me."

Hunh? Who here has said anything about manging your future?

#88 ::: adamsj ::: (view all by) ::: September 13, 2004, 05:24 PM:

Randolph, how dare you suggest lower profits?!? I smell Communism, Hypnotism, and The Beatles!

#89 ::: Steve Eley ::: (view all by) ::: September 13, 2004, 05:33 PM:

Randolph Fritz wrote:
But it is not always possible; sometimes they have to find cheaper supplies or (whisper it) pay out lower profits. Taxes are no different than any other business expense in that.

And sometimes they fail to remain competitive with international firms who don't have the same burdens. Or they start divesting profitable divisions because they need the write-off. Or they say "Bugger this for a lark" and move their headquarters to a file drawer in Grand Cayman. Where does Uncle Sam get the money from once the world's top companies are all outside the U.S.?

The biggest problem with taxing business is that it's bad for business. If America starts becoming bad for business, then everybody in America loses.

#90 ::: Tom Whitmore ::: (view all by) ::: September 13, 2004, 05:43 PM:

Steve: taxing business is bad for business? When businesses benefit greatly from the ways tax money is spent, as mentioned by others above (roads, air traffic control, police, even welfare which allows its recipients to spend money), it strikes me as just a bit fatuous to say they shouldn't help pay for all that. Making corporations a particularly privileged form of person should not include the privilege of being untaxed (nor should it for churches IMO, but that would be unconstitutional and wrong now wouldn't it?).

#91 ::: Bobbi Fox ::: (view all by) ::: September 13, 2004, 05:43 PM:

Larry, in your comment
here
you write:

> Steve - If you have a million dollars worth of farmland and are just scraping by, perhaps the answer is to sell the farmland and invest the million dollars elsewhere. If the land is really
> worth that $1MM, somebody else should be able to get a decent rate of return on it.

As those of us who have lived in more rural (or even exurban) areas know, the 'value' of land is frequently determined by what use can be made of it. Nowhere is this more a problem than with farmland: if the farmland is on the edge of a city or town, the 'value' of that land is usually assessed in terms of what a housing developer might pay for it, not what another farmer might pay for it.

(This used to be -- and may still be, for all I know -- particularly pernicious when the farmer wife survived the her farmer husband: even though it was likely that her sweat equity met or exceeded her husband's, the farmland was not considered jointly owned.)

So if I, the about-to-die farmer, want to leave my farm to my heirs under the 'teach the hungry man to fish' philosophy, rather than the 'give the hungry man a fish' philosophy that you imply, my heirs might be out of luck. And the country loses another farm, whose real value (in terms of lowered food prices, better food choices, anti-urban-sprawl, etc.) might really exceed the 'value' placed on it by The Market.

#92 ::: Larry Brennan ::: (view all by) ::: September 13, 2004, 06:12 PM:

Bobbi: And the country loses another farm, whose real value (in terms of lowered food prices, better food choices, anti-urban-sprawl, etc.) might really exceed the 'value' placed on it by The Market.

If we, as a society, place a higher value on the farm that the market does, we should express that by interfering in the market so that keeping it as a farm is more economically attractive. How is that done? Zoning. Development fees. Crop price supports. Farm subsidies. Tax incentives. Transfer taxes. Gasoline taxes. And a host of other ways that are in common use throughout the US. And if it isn't enough, subdivision here we come.

It's not a black and white issue. The Brooklyn neighborhood I grew up in was mostly agricultural when my great-grandparents bought the family house in 1919. By 1929, the immediate vicinity was almost completely built out, and some fine agricultural land was lost. (You should have seen what our garden yielded!) But thousands of families had access to better housing. Not a clear-cut tradeoff.

#93 ::: Steve Eley ::: (view all by) ::: September 13, 2004, 07:28 PM:

Tom Whitmore wrote:
Steve: taxing business is bad for business? When businesses benefit greatly from the ways tax money is spent, as mentioned by others above (roads, air traffic control, police, even welfare which allows its recipients to spend money), it strikes me as just a bit fatuous to say they shouldn't help pay for all that. Making corporations a particularly privileged form of person should not include the privilege of being untaxed (nor should it for churches IMO, but that would be unconstitutional and wrong now wouldn't it?).

You're half-right, I half-misspoke. Under the current system, I really should have said overtaxing business is bad for business. My post was in response to a running thought here that the way to keep the old voters happy was to let them coast and tax the hell out of corporate America instead -- because who cares if corporate America gets hurt? The point I'm making is that it doesn't work that way. When corporate America gets hurt, everyone gets hurt.

OTOH, under a more rational system (and yes, I have one in mind, but I'm not up to jumping in that hole in this topic, so I'll say no more), we'd recognize that there really isn't any point in taxing corporations, because they don't own wealth. 100% of their assets are really the assets of their shareholders, and 100% of their costs get passed down to their customers. Not "most," not "unless they cut profit" -- all costs of a corporation are ultimately assumed by the customers.

So when you tax corporations, you're taxing consumers. Always. An efficient tax system would recognize that and cut out the pointless and burdensome middle layer, laying 100% of the tax consumers directly. Everyone benefits from that -- not just businesses, but consumers, too.

#94 ::: Nomie ::: (view all by) ::: September 13, 2004, 07:54 PM:

Somebody help. I'm a college student with my head currently bunked down in ancient Rome rather than modern issues.

What, exactly, are people talking about when they say "privatizing Social Security"? I honestly don't know what this means. Please, go slowly and use small words; my economics knowledge is nigh nonexistent.

#95 ::: Tom Whitmore ::: (view all by) ::: September 13, 2004, 09:32 PM:

Steve:

Taxing corporations is always taxing consumers at the same level that biology is always chemistry, or chemistry is always physics, or physics is always mathematics.

Our current corporate system has emergent properties that make it much more than the simple sum of its components. I think this is an obvious comment -- if it's not obvious to you or others here, we have a potential for a major discussion.

Cheers,
Tom

#96 ::: Jonathan Vos Post ::: (view all by) ::: September 13, 2004, 10:15 PM:

Tom Whitmore:

I think you hit the nail on the head in your comment to Steve. Your robustly antireductionist stance, and explicit valorization of emergence, uniquely characterizes you to explain the Complexity of Worldcons to the folks who shall run the 6th International Conference on Complex Systems in or near Boston, probably, in less than 2 years. You agreed to do so, but I can't find your email. Can you email me again, offline?

On another matter, Fiction About Scientists, which set overlaps Science Fiction, have any Making Light folks read and want to comment on "On the Nature of Human Romantic Interaction" by [MIT Roboticist] Karl Iagnemma [Delta, $13, short story collection, winner of Pushcart Prize]?

#97 ::: CHip ::: (view all by) ::: September 13, 2004, 11:40 PM:

Also, If your index fund has a management fee north of 1%, find another fund.

1%?!? Vanguard charges .19, and Fidelity just dropped to .1 (although I've read that was done in a form that makes going back to the old rate easy). Of course, sometimes there's no choice; one of my grievances against my employer's new 401(k) provider is that it charges over 1% for index funds. (Given their claims about long-term returns, I don't intend to trust my money to their managed funds.)

Steve Eley (emphasizing someone else's comment): I think you're splitting hairs when you say savings weren't stolen by Enron management. They kept the price up by pushing employee money into the stock even while they were selling; you could argue that technically that's fraud, but if B is effectively siphoning money directly out of A's pockets, B is a thief in my book.

And: Bush didn't cut FICA, did he? I know the dividing line between Social Security and the general budget has become more and more fictional (which is one of its biggest problems, IMO) but I was not aware that Bush's cuts have resulted in any less money going to Social Security.

Less money in, no. More money locked up in government debt, yes.

And on another of your arguments: as far as I know, corporations are taxed only on the money they have left over from sales when they've paid their costs. How does taxing that money add to the costs paid by consumers?

#98 ::: Randolph Fritz ::: (view all by) ::: September 14, 2004, 02:10 AM:

Nomie, "privatizing Social Security" refers to taking the money currently being transferred to elders and disabled already receiving Soc Sec payments and, instead, putting it in an account which would be invested in various sorts of securities by the account holder. The two big problems with this are (1) how to pay the people already entitled to Social Security when the money is instead saved (Paul Krugman calls this the "2 - 1 = 4" problem) and (2) what happens when (as will always happen to some people) even sensible private investments don't pan out; letting people who paid in and invested sensibly fall into poverty in old age seems cruel, at least. Nonetheless, there is much advocacy for this among some in the investment community, who badly want to get their paws on all that money.

#99 ::: pericat ::: (view all by) ::: September 14, 2004, 03:10 AM:

For that matter, corporations don't own wealth.

just souls.

#100 ::: Michelle ::: (view all by) ::: September 14, 2004, 11:13 AM:

Sorry to be so late into the game. This is a big issue in my state (West by-God Virginia).

There are some points that I think are particularly important that I don't think can be emphasized enough:

1) I am coming to believe that private retirement provided by private companies is little more than a shell game. We have a huge (and I do mean huge) problem in my state, where coal and steel companies go out of business, or file bankruptcy, and suddenly retirees and employees have, through no fault of their own, completely lost their retirement. These are people who often took pay cuts and less vacation to they could contribute to their retirement, only to find those sacrifices were for naught.

These people did everything right, yet still have nothing for retirement.

2) The point was made earlier about government efficency, which was seemingly ignored. Believe it or not, the government is far more efficient that private companies. For medicare/medicaid the numbers are about 3% as opposed to 30 to 40% for private health insurance. (Numbers given in my Health Policy class in the spring)

It seems to me that the government should be providing a model for private industry and not vice versa.

3) As far as privitization of social security, I find it hard to believe that an American populace that carries thousands of dollars in credit card debit, can be trusted to manage their own retirement.

If people can't even understand why it is so bad/dangerous/expensive to carry debt on their credit cards, I have a hard time believing that they can understand the nuances of setting up a retirement fund.

#101 ::: Randolph Fritz ::: (view all by) ::: September 14, 2004, 12:23 PM:

Michelle, (1) the problem with companies not making good on their pension promises is called "unfunded pension liability", and it is indeed widespread--an unfunded pension depends on the persistance of the organization which supports it. House Democratic report here.
401(k) accounts, provided they are honestly managed (any company that encourages its employees to put 401(k) funds in company stock is not managing honestly) are a much better deal for employees, since the money actually belongs to the employees, but of course still are not perfect.

(2) Health care is a different--and much harder--problem than pensions.

(3) The explosion of private debt is mostly a reflection of hard times, not a moral failing.

#102 ::: Jonathan Vos Post ::: (view all by) ::: September 14, 2004, 12:29 PM:

Michelle:

Your comment that "government should be providing a model for private industry and not vice versa" uncomfortably reminds me of a triumphalist NASA telling industry how to manage, before NASA started blowing up space shuttles. Or Japan lecturing the world on good governance before they crashed into their multi-trillion dollar liquidity crisis.

On the other hand, I do agree with your point about credit card debt. I have spoken at length with some very rich people who believe that America's wrong turn came in 1951 when credit cards were first promulgated. Before that, they argue, ordinary citizens used credit only for big ticket items, and were otherwise frugal. Afterwards, consumers have been increasingly suckered into working their entire lives to pay interest on debts that could have been avoided. And isn't it troubling that credit card companies set up tables at colleges and high schools in registration week to entice the youngsters to perpetual indebtedness? And what about the Class Action against Citibank [I think] that they deliberately mailed monthly statements too late for customers to pay timely, thereby reaping unfair late fees?

I don't carry a credit card anymore. Just a ATM debit card. Corporation have optimal debt levels (formula in many texbooks) but my mortgage is the only debt I want, and I'll be glad when it is paid in full.

#103 ::: Arlen ::: (view all by) ::: September 14, 2004, 01:03 PM:

Ah, taxes. Since my wife is a fiduciary tax accountant, this is a subject near and dear to my heart.

Social Security is not now, nor has it ever been, a "retirement fund" within any reasonable definition of the term. It was established to draw an economic line below which we, as a society, collectively refused to let our retirees drop. It's fashionable among detractors to call it "wealth redistribution", but that's only because they believe in the pleasant fantasy that they alone have earned what they have and thus deserve to keep it. (Note please the presence of the word "alone" in the above. I call your attention to it precisely because someone will be sure to read the above as my saying they had nothing at all to do with whatever measure of success they have achieved. Obviously I am not saying that; I just wanted to point that out now so that most of those who would misread the above will be prompted to reread it and get it right the second time.)

We have all benefited from those who have gone before us. We could, I suppose, leave it all up to each individual to place a value on what they have received and expect them to pay it out of their good will. I doubt even Pollyanna could advance such a notion with a straight face. Or we could set some sort of price for it, which is what we do now via FICA. It's always seemed to me that the FICA taxes are the private citizen equivalent of the mandatory royalties paid by radio stations for broadcasting music; the government sets the royalty fee structure for the stations, who then pay into the pot and the results redistributed according to arcane formulas.

It's like the farmland valuation problems talked of earlier. Does land have an intrinsic value, or is its value derived from the purpose it is put to? Obviously the latter. But base taxes on that purpose, and suddenly the tax law becomes almost talmudic in its complications. You end up with someone with 10% as much land as his neighbor paying 300% as much in taxes. (Like Warren Buffet's famous argument demonstrating the unfairness of California's Proposition 13, "Why is it I should pay less in taxes for my large estate than my neighbor does for his house?") So we try to work around it by generating other tax loopholes, subsidies, etc., all of which, unfortunately, end up nearly as byzantine. (My favorite was the milk price support that paid more to farmers based on the distance their farm was from Eau Claire, WI.)

All that is absolutely necessary for the Social Security "fund" to contain is the expected outlay for the current year. Any excess is used to offset unexpected expenses, or held to lift the burden a little when the payer/payee ratio swings away from the payer.

As such, the fund can *never* "run dry", as is often foretold. All that can happen is that the current government decide to stop paying it, in that same way they might decide to stop paying for any other budget item. As long as the government decides to pay for it, the money will be there.

(This, BTW, is where all discussions of taxation belong. Rather than on the taxes collected, deal with the programs paid for. If the program is a valid program, then the tax to fund it is a valid tax, no matter it's level. If it must be done, then it must be done and we have to ante up the funds. Unfortunately, tax-haters have discovered they can't win that discussion, so instead they shift to calling taxes "theft", etc., in an attempt to win by definition what they cannot gain through other means.)

I've always suspected that the term "Social Security Trust Fund" was invented by someone who wanted the system to fail; it doesn't describe the item, and it raises expectations that were never part of the specification.

#104 ::: Sullydog ::: (view all by) ::: September 14, 2004, 01:38 PM:

I don't know that much about the fiduciary mechanics of the SSTF. It's not all that relevant - our choice lies not in the mechanics of social security, but its existence. I'm not counting on it. The overall trend seems to be tilting strongly toward a "you're on your own, whatever happens to you is your responsibility" mentality.

For me, this has always translated into "I've got mine, now you get yours."

Reality as I see it: there -are- old people in America who don't have enough to eat, and who can't afford their medicine. There -are- crazy, demented people in the streets with nowhere to go. There -are- people who get so screwed over by the arbitrary intrusions of real life (nasty, brutish, short) that they fall into despair, drugs, alcohol, disease, homelessness, madness -- and eventually your local ER. Not everybody gets to save for their retirement. Not everybody has the wherewithal, or the foresight, or the luck, or the brains to save for medical expenses and a rainy day. Some people are just unlucky, or stupid, or broke.

Society has no choice but to make a choice: do we care for them or not?

Some people call this welfare, or coddling, or bleeding heart liberalism. I call it compassion.

But a compassionate society isn't cheap.

This will become more true, not less, in the 21st century.

Not sure what any of this ranting on my part accomplishes, except perhaps to discharge some of the ugliness and brutality that has been inflicted on these tired eyes. Guess I should go back to lurking.

#105 ::: BSD ::: (view all by) ::: September 14, 2004, 01:47 PM:

The statement that "Corporations don't own well" is completely untrue as Corporations exist under law, both Federal and of every state I can think of. A corporation is an entity OWNED by shareholders, but barring certain very specific circumstances, shareholders can't just show up and take stuff -- they're not even, necessarily, entitled to dividends. They can't even, again barring certain very specific circumstances, control what they corporation does.

Taxing the income of corporations is absolutely necessary. Sure, they'll pass on those costs to consumers, if they can, but there is a breakpoint where they can't. And emergence aside, it's important to remember that the most frequent consumers of the services of many corporations are other corporations, only finding a biological person a few levels down. In this situation, distributing the costs to consumers becomes even fuzzier.

#106 ::: Mark Gritter ::: (view all by) ::: September 14, 2004, 04:56 PM:

All this reminds me of this article, which reports that while the market has earned about 12% per year over the past 20 years, individual mutual fund investors earned about 4%, and 401(k) holders earned about 6%.

Individuals just aren't particularly good investors. A good quote from the article: "... individual investors seem to understand that they don't invest well. They actually don't want the responsibility for their investments... But consider this: The company's managers --- the people who determine its plan design --- tend to be in the small minority that wants personal control of retirement investments."

These numbers don't bode particularly well for privitization schemes, or even those of us who hope to retire--- or at least stop working--- on our own.

#107 ::: Steve Eley ::: (view all by) ::: September 14, 2004, 06:11 PM:

BSD wrote:
The statement that "Corporations don't own well" is completely untrue as Corporations exist under law, both Federal and of every state I can think of. A corporation is an entity OWNED by shareholders, but barring certain very specific circumstances, shareholders can't just show up and take stuff -- they're not even, necessarily, entitled to dividends. They can't even, again barring certain very specific circumstances, control what they corporation does.

Sure they can, and sure they do. The guy with one share out a hundred million may not own much or control much, but he does get a vote (a small one) in who sits on the board and on certain procedural matters. If he buys more of the corporation he gets progressively more control, and if he acts in concert with people who collectively own a majority of the stock, they can do whatever they want -- including setting dividends or giving company assets to themselves.

Being a shareholder in a corporation isn't much different from being a citizen in a republic. We say we "own" our government, and that tax money is ours. This is true, just as a corporation's money is its shareholders'. The only difference is that a citizen's ownership is theoretically egalitarian, and a shareholder's ownership is plutocratic.

(Thinking of this just now makes me ponder the zero-sum equation of trust -- how people who trust government tend not to trust business, and vice versa. Is it no deeper than that business investment seems too exclusionary to people who lack resources, and government representation seems too *inclusionary* to people who covet resources? --Urgh, never mind, this topic's already drifting too far on a light breeze, I won't go there today.) >8->


Taxing the income of corporations is absolutely necessary. Sure, they'll pass on those costs to consumers, if they can, but there is a breakpoint where they can't. And emergence aside, it's important to remember that the most frequent consumers of the services of many corporations are other corporations, only finding a biological person a few levels down. In this situation, distributing the costs to consumers becomes even fuzzier.

Actually, in that situation, distributing the costs to the corporations becomes fuzzier. When Tab A Inc. is shooting for a 3% margin for a stable quarterly report and raises its costs on tabs to cover the taxes on that, and Slot B International needs those tabs in order to build its slots for which it'll net 5% profit, and Latch C Logistics uses slots from 18 different suppliers but negotiates with Catch D Industries to sell its latches *at cost* in order to seal a better deal in another division, and so on, all the way down the chain...

Well, with all those companies paying different amounts of taxes on different profits for different components, and with all of them *also* paying for the requisite accounting, and with all of them sometimes operating at less-than-peak efficiency or taking on unnecessary charges in order to keep their taxable profits down... Inefficiency propagates. By the time you get to Microwave Oven Z, which gets sold at the local hardware store, how much of the cost of that appliance is really due to taxes, or the indirect overhead of taxes, up the chain? Is it even calculable? Probably not.

Now imagine a world in which corporations don't pay taxes. Tab A sells to Slot B with no overhead, and so on. All the components become cheaper. The product becomes cheaper. At the register, the customer pays sales tax -- and sure, maybe that tax is higher than it is today: he's okay with that. It'll still be less than the hidden overhead in the product cost. Taxes at the consumer end are crystal clear; he's taxed exactly once, so he knows exactly how much he was taxed. And he still has more money to buy more stuff than he did before. (And pay more taxes on that stuff, yippee!) The consumer feels richer, business is more efficient, government makes just as much money.

Now what's wrong with this idea? Anything I'm missing?

#108 ::: Steve Eley ::: (view all by) ::: September 14, 2004, 06:20 PM:

Mark Gritter wrote:
All this reminds me of this article, which reports that while the market has earned about 12% per year over the past 20 years, individual mutual fund investors earned about 4%, and 401(k) holders earned about 6%.

Yes. Very true. Been there, done that, got the headache.

Did I mention the index funds yet? Have we beaten the subject of index funds thoroughly to death, or is there still room for more fun and games?

Quiz time: If you're invested in a properly maintained S&P 500 index fund, and the S&P 500 index goes up 12% in a given year, then -- discounting minor variance for holdings fluctuation, dividends, and fees -- approximately how much will your index fund earn that year? Show your math on the back of the sheet.

#109 ::: Larry Brennan ::: (view all by) ::: September 14, 2004, 06:34 PM:

Quiz time: If you're invested in a properly maintained S&P 500 index fund, and the S&P 500 index goes up 12% in a given year, then -- discounting minor variance for holdings fluctuation, dividends, and fees -- approximately how much will your index fund earn that year?

If it's not in a tax sheltered account, somewhat less after you pay taxes on the dividend and capital gains distributions, which happen even for tax managed funds.

Still, well-managed index funds are one of the best ways to buy the market.

By the way, I don't think anyone is criticising your personal investment strategy, which seems sound, although you are exposing yourself to currency risk with those global funds. The observation regarding relative rates of return is meant to point out the inherent risk of "privatizing" Social Security.

Again, this is not intended as investment advice. Consult a qualified investment advisor, tax attorney, blah, blah, blah.

BTW - risk is usually measured as volatility, which includes both upside and downside.

#110 ::: Tom Whitmore ::: (view all by) ::: September 14, 2004, 07:16 PM:

Steve, you're assuming the Invisible Hand of the Marketplace works properly on corporations. As has been shown recently with, e.g., Enron, that's not a safe or sage assumption.

#111 ::: snicker-snack ::: (view all by) ::: September 14, 2004, 11:02 PM:

Karen Cooper @ 7.52 p.m. Sept 10 said

"I truly believe that it is among the government's jobs to keep the most needy above water."

I agree with the general sentiment but perhaps would couch it this way: it is the government's (ie. us, collectively, as a people)
job to ensure that conditions are such that the most needy are as much as possible able to
keep themselves above water. Contributing to and being able to draw from a social insurance scheme is part of this.

#112 ::: Bob O ::: (view all by) ::: September 15, 2004, 01:39 AM:

There's a part of this debate that is so obvious that it's never stated, at least not in polite company:

What happens to the stock market if the Social Security system is privatized?

In the short term, stock is essentially a finite commodity. If a few trillion dollars from the SS trust comes into the market, DEMAND increases enormously. Econ 101 teaches us that stock prices will then skyrocket.

And every person who already owns a stock portfolio will realize a huge windfall.

Remember this when you hear the idea of 'SS privitization' put forward.
And consider the size of the portfolio of the person pushing the idea.

#113 ::: Shane ::: (view all by) ::: September 15, 2004, 03:18 AM:

Some suggest that in the near future retired baby-boomers will be an unsupportable drain on a smaller workforce, but this ignores something:

We have already been through a time where a 'small' workforce supported the unproductive baby-boomers, when they were actual babies. I don't remember the 50's and 60's being described as lean times in America.

ISTM, this observation is pretty solid, pretty unassailable. Everything else is just specifics, right ?

cheers,
Shane

#114 ::: Paul Walker ::: (view all by) ::: September 15, 2004, 07:27 AM:

<raises hand>

This is interesting, but for the benefit of us non-Americans, can someone explain what FICA is and how it works? :) Is it a flat-rate thing, a progressively taxed thing, does it go purely to your pension, ...?

Cheers!

#115 ::: mayakda ::: (view all by) ::: September 15, 2004, 09:44 AM:

The guy with one share out a hundred million may not own much or control much, but he does get a vote (a small one) in who sits on the board and on certain procedural matters. If he buys more of the corporation he gets progressively more control, and if he acts in concert with people who collectively own a majority of the stock, they can do whatever they want -- including setting dividends or giving company assets to themselves.

I think, and I may be wrong, that corporations now usually have measures in their by-laws to make takeovers dificult, like not allowing directors to be removed without cause, requiring high percentages of common voting stock (80%, frex) to do anything, etc. Basically, if you own that much of the stock, you're much better off negotiating with the board then trying to use the votes to change things.

#116 ::: Geof ::: (view all by) ::: September 15, 2004, 10:42 AM:

Shane writes:

We have already been through a time where a 'small' workforce supported the unproductive baby-boomers, when they were actual babies. I don't remember the 50's and 60's being described as lean times in America.

I tell you what, Shane, you convince 5 boomers you know to live off the resources their parents spent on supporting them as children, keeping in mind that their parents presumably didn't provide separate housing and transportation (doesn't every 3-year-old have their own car?). Then we'll talk.

#117 ::: Jonathan Vos Post ::: (view all by) ::: September 15, 2004, 11:00 AM:

Back when I worked on several projects for the safety of the Space Shuttle, and was blocked in each one by what appeared to be criminal fraud by Rockwell International, and was further blocked by two malignant science fiction fans who were plagiarizing my writings and videotaping, I used to get a hefty paycheck. Every two week said multi-thousand dollar paycheck had state and federal deductions. Big ones, California being what it is. But late in the year, the FICA deductions would cap out, and the paycheck become rather larger.

People don't want to talk about their paychecks at work. If they make more than you, they don't want to boast. If they make less than you, they don't want to reveal their relative poverty. However, I did see some senior engineers suddenly enjoy larger paychecks, and much of management, when the FICA capped out. The higher the pay, the sooner that point came, in a regressive way, of course. The vast majority of employees never saw the larger paychecks; FICA had grown to devour more than their income taxes.

The company even had a job-grade, member of Technical Staff VII, where there was no upper limit in pay, although duties were still engineering. I knew a few MTS-7s, who had the income of managment without the administrative hassles. That's where I was heading, as I was at the top of MTS-5 and my boss (who had 400+ employees and earned the company revenues of over $50,000,000 annually) was preparing to boost me to MTS-6.

But I sacrificed that to try to save the Shuttle and its living, breathing astronauts. Management was more interested in saving their budget and schedule and hefty pay than in doing the job right. But at least FICA let them feel superior to the great unwashed masses who will be paying for their retirement.

And, as I've mentioned, my 20 years in the space program gets me no pension whatsoever, which is how management wants it.

I am a reasonably rational person, but the Social Security situation makes me -- not afraid -- but angry.

As to stock, I did like having company stock in companies where I was in management. At EarthLink, as Manager of Software Documentation (with a role in software design and testing) I accumulated stock. When I left, I sold it all on the day that looked highest in stock value. Shares were over $90. I earned enough to pay the mortgage for several months, and that turned out to be the highest day they ever had. It crashed to $12 or less. Should everyone get stock instead of Social Security checks? Depends.

Surveys show that 95% of Americans don't know the absolute basics of investing (sample question: if interest rates go up, do stocks or bonds tend to rise in value?). I think that Emperor Bush II would be happy to hand out stock that people lose, for the same reason that professional poker player would be happy to have everyone given poker chips. Privatizing? Bwahahhaaaahaaaahaaaa... Ante up, suckers!

#118 ::: Michelle ::: (view all by) ::: September 15, 2004, 12:25 PM:

Randolph Fritz,

Unfunded pension liability is a huge problem, and one that is going to exacerbate the SS problem. It goes hand in hand in this state with companies that have made environmental disasters, and then dissolve and don't clean up after themselves.

Reagarding overhead--I believe someone upthread mentioned that SS had a low overhead, but I can't find the post now.

(3) The explosion of private debt is mostly a reflection of hard times, not a moral failing.

I strongly disagree with you on this. Many people I know have a LOT of credit card debt, and don't see it as a problem. If they get an unexpected cash windfall, they spend the cash instead of paying off their credit card debt.

I'm not saying it's a moral failing. I'm saying that people are lacking the knowledge to make informed decisions. And if people can't even realize the hazards to credit card usury, then how can they be expected rationally invest their own retirement?

I know the dangers of credit cards, yet I hardly understand retirement investment, and allow TIAA-CREF to do take care of everything for me. I can't imagine trying to navigate those murky waters myself--even with the asistance of my accountant brother.

#119 ::: Steve Eley ::: (view all by) ::: September 15, 2004, 12:26 PM:

Tom Whitmore wrote:
Steve, you're assuming the Invisible Hand of the Marketplace works properly on corporations. As has been shown recently with, e.g., Enron, that's not a safe or sage assumption.

A.) Enron was an outlier. No, really, it was. A lot of corporations are badly managed, but few of them are scum, and Enron was a new peak on the scum scale. This is like saying "Steve, you're assuming you can trust Europeans. As has been shown recently with, e.g., Vlad Tepes, that's not a safe or sage assumption."

B.) Point A notwithstanding, I never did say I was a laissez-faire capitalist. I believe fully in corporate accountability, in regulation in the securities market, and in several other things that would make baby Ayn Rand cry. I just don't believe it's efficient to tax corporations. It creates incentives for the corporations to turn what should be simple P&L statements into Bynzantine works of numerology, and nobody wins by that.

#120 ::: Steve Eley ::: (view all by) ::: September 15, 2004, 12:28 PM:

Shane wrote:
We have already been through a time where a 'small' workforce supported the unproductive baby-boomers, when they were actual babies. I don't remember the 50's and 60's being described as lean times in America.

Old people are more expensive than babies.

#121 ::: Tom Whitmore ::: (view all by) ::: September 15, 2004, 01:18 PM:

I'll agree that Enron was an outlier. Outliers can create statistically significant problems. And outliers move the median in different ways when one looks at their magnitude rather than their mere existence: Enron counts as a significant outlier to me.

And they point at a lot of less significant folks who are trying to game the system. A rabid wolf is more dangerous to the flock than a healthy wolf; does this mean we stop having shepherds when we find a rabid wolf?

I think we're both fairly rational, Steve -- you acknowledge the point of stopping the rabid ones. We just disagree on where the rational management point falls, with me believing there are emergent behaviors in corporate management that make taxing appropriate and you not believing such. Neither one of us is likely to convince the other. I'll still listen to your arguments, but there's a fractal tipping point between our experiences, as far as I can see.

#122 ::: Larry Brennan ::: (view all by) ::: September 15, 2004, 01:57 PM:

Steve Eley: Enron was an outlier. ... and Enron was a new peak on the scum scale.

The problem isn't just that Enron was scum. The problem is that they were admired, lauded, politically connected scum. Since they were so admired and connected, it was inconceivable that they would be behaving unethically or illegally. So they could get away with anything, for a while at least.

How many other well-loved, well-connected organizations are stealing us blind right now?

---

Paul Walker: for the benefit of us non-Americans, can someone explain what FICA is and how it works?

FICA stands for Federal Insurance Contributions Act, and it’s a flat-rate tax on wages that funds our old-age pension and health care systems, Social Security and Medicare.

If you are employed, you pay half of the cost of both taxes, which is not deductible against your federal income tax, and your employer pays the other half, which is not reported as income to you and is not taxed.

If you are self-employed, you pay the full amount, and can deduct half of it against your federal income tax.

The Social Security portion of FICA only applies to wages under $87,000 per year. This cutoff is indexed to inflation and adjusted annually. There is no wage cutoff for the Medicare portion of the tax.

The Social Security portion of FICA has a flat rate of 12.4% (employed people see this as a flat 6.2% tax) plus 2.9% for Medicare (again, employed people see this as an additional 1.45% tax) for a total of 15.3% of gross wages from $1 to $87,000. Once you hit the $87,000, your paycheck magically rises.

IMHO, it’s an awful tax regime, and as I mentioned before, I’d like to see the overall rate drop, the tax applied to non-wage income as well, and the income cap come off. And yes, I'm usually a beneficiary of the post-max-FICA income spike.

#123 ::: Randolph Fritz ::: (view all by) ::: September 15, 2004, 05:00 PM:

Michelle: "Many people I know have a LOT of credit card debt, and don't see it as a problem. If they get an unexpected cash windfall, they spend the cash instead of paying off their credit card debt."

Wow. How to make your banker rich.

"I'm not saying it's a moral failing. I'm saying that people are lacking the knowledge to make informed decisions. And if people can't even realize the hazards to credit card usury, then how can they be expected rationally invest their own retirement?"

I agree. Finance is not taught anywhere in the standard course of education, which means knowlege of finance is either a matter of apprenticeship, self-education, or guesswork. And there are plenty of scam artists out there.

"I know the dangers of credit cards, yet I hardly understand retirement investment, and allow TIAA-CREF to do take care of everything for me."

Retirement savings is not that difficult. The big problem, of course, is what I keep repeating--"no investment is certain." Which makes it very scary, even when one knows what one is doing, and scared is stupid.

#124 ::: Sullydog ::: (view all by) ::: September 15, 2004, 05:55 PM:

Steve: a government that can't tax corporations robs itself of both the carrot and the stick. I want to be able to tax corporations that send wealth out of the country or strain my local ecosystem or inflict heavy wear on my community's infrastructure. I want to reward companies that bring wealth into the country, or show environmental initiative, or otherwise benefit the community. Taxes enhance my power to wield at least a little control over corporate behavior. That's right - my power - in America, the government is still, at least nominally, an instrument of the people. And giving the people's government the power to control corporate behavior is not, as some might argue, a bad thing. Since you've already conceded that you're not a laissez-faire capitalist, it's something you might consider.

Randolph: You make some good points. I agree, retirement savings may not be that difficult...for you or me. But for some people--frex, the poor, the unlucky, the crazy and the stupid--it is out of the question. Social Security guarantees a minimum level of income during the most vulnerable time in our lives, when wringing our hands over what we -should- have done is...well, pointless. It's a recognition of certain brutal realities, including the reality that some people will hit the age of seventy with nothing, and we're unlikely to let them starve in the street. It's not an individual investment. It's like putting some of the family's wealth into a low-yield, low-volatility money-market or CD, because we know grandma is going to need our help. It's a societal investment that emphasizes security, not growth--hence the name. And IMHO, it's a sound investment.

#125 ::: Marilee ::: (view all by) ::: September 15, 2004, 06:00 PM:

To those who aren't counting on Social Security: I hope you have a good private disability policy. I didn't expect to become disabled at age 31.

#126 ::: CHip ::: (view all by) ::: September 15, 2004, 06:16 PM:

Steve -- your discussion of tab A, slot B, and so on still doesn't answer my question of why taxes, which are charged on profits, make a difference to the costs of a corporation. I can accept as a consequence of this your claim that P&L statements are unnecessarily complicated (e.g. to hide profits from taxes), but the original claim doesn't compute. Explanation?

#127 ::: Randolph Fritz ::: (view all by) ::: September 15, 2004, 06:20 PM:

"Enron was an outlier."

Then what were Tyco, Worldcom, Global Crossing, Adelphia, ...?

#128 ::: Patrick Nielsen Hayden ::: (view all by) ::: September 15, 2004, 10:06 PM:

"In my experience, government is a combination of predator and parasite, more dangerous in the long run than any freelance predators could hope to be."

Absolutely, and this explains why places like Mogadishu, where "freelance predators" have tiny governments outgunned, are so much more pleasant to live in than the terrifying socialist dystopias of Copenhagen, Toronto, and St. Paul, Minnesota.

It also explains the long lines of terrified refugees one sees queuing up to emigrate from France.

#129 ::: David Bilek ::: (view all by) ::: September 15, 2004, 10:57 PM:

I just can't reconcile the (relatively speaking) rosy outlook that launched this thread with things like this:

http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2004/09/12/MNG2S8NOI21.DTL

Are the facts in that article wrong? I'm not being disingenuous, I simply can't reconcile the confidant statements made both in this thread and in that article with one another. To sum up for people who don't want to read the article, all projections show our future fiscal deficit (projected receipts minus future obligations) at between $40 and $72 trillion dollars.

It's easy to say "It's untrue, of course" but when I see articles like this I'd rather have an explanation of *why* it's untrue...

#130 ::: Paul Walker ::: (view all by) ::: September 16, 2004, 09:21 AM:

Larry: thanks for the explanation, I can follow things a little better now...

Patrick - do I detect maybe a hint of sarcasm?

#131 ::: Steve Eley ::: (view all by) ::: September 16, 2004, 09:45 AM:

CHip wrote:
Steve -- your discussion of tab A, slot B, and so on still doesn't answer my question of why taxes, which are charged on profits, make a difference to the costs of a corporation.

First, because you're wrong. Taxes are not charged on profits. They are charged on net income, and they are themselves a cost. Profits are what you have after all costs including taxes are paid. There's a lot of nuance to this that I don't quite follow (I know enough to read a quarterly report, but that's it); if someone here wants to give the full four-part harmony, I would be interested myself.

It matters because corporations (especially public ones) aren't shooting for a particular net income dollar amount. They're shooting for particular earnings after taxes, and the psychology of the market is such that earnings predictability matters rather more than it should. When a product gets rolled out, therefore, the mentats who figure out product pricing have to take into account the final impact on the company's earnings, and that means they have to figure out the final margin, and that>/I> take into account the taxes on whatever the pre-tax margin is and raise the price accordingly to bring it up to the margin they want.

Make sense? I can feel in my bones that someone's going to jump in here with some "Oh, so it is all about the profits, those fargin bastitches!" line. To which I say: Well, yeah. Profits are not optional. And high margins are not inherently evil (nor do they necessarily mean a lot of money is being made). It all depends on the industry you're in, the volume you're selling, and the importance of the product to the customer. Sometimes a high margin is a necessary risk management strategy, so you have room to maneuver when things go bad. And sometimes it is just evil. One can't say without context.

But that's a digression. Conclusion: if companies didn't have to pay taxes, stuff would be cheaper. Even if the consumer paid 100% of the taxes directly, so the government made the same money, his cost of living would still be cheaper because of the reduced overhead and fewer mind games in the accounting offices.

#132 ::: Steve Eley ::: (view all by) ::: September 16, 2004, 09:52 AM:

Randolph Fritz:
"Enron was an outlier."
Then what were Tyco, Worldcom, Global Crossing, Adelphia, ...?

Also outliers. And less scummy than Enron.

Next question?


#133 ::: Xopher ::: (view all by) ::: September 16, 2004, 11:12 AM:

Paul Walker: Patrick - do I detect maybe a hint of sarcasm?

Would Patrick be sarcastic with someone who has actually lived both under governments and in a society ruled by freelance predators, and thus had a chance to compare them personally? I submit that he would not.

Nonetheless, I daresay your assessment is correct.

#134 ::: Larry Brennan ::: (view all by) ::: September 16, 2004, 11:16 AM:

Steve - Enron, Tyco, Worldcom, Global Crossing and Adelphia all had large market capitalizations, were regareded as innovators in their fields, and many thought them to be above reproach in their business practices.

We've alreadly learned that WalMart routinely forced workers to perform unpaid overtime, and gave a wink and a nod to contractors exploiting illegal immigrants.

But, an informal poll back when I was in B-school revealed that while Wal-Mart was admired, nobody wanted to work there. My classmates did want to work for companies like Enron.

And no, Worldcom, et al were not necessarily less scummy than Enron. If Aunt Edna worked for either, she's likely had a great hole torn in her 401(k) because she was lied to.

Good corporate behavior, including things like compliance on financial reporting, doesn't happen without incentives, including the incentive of avoiding jail. Our regulators fell asleep at the switch, and by and large are still sleeping. They're more concnerned with chasing poor families who made a mistake on their tax forms and claimed too much Earned Income Credit.

Steve, there are more "outliers" in the market than you think. I just hope that not too many of them are components of the DJIA.

#135 ::: Larry Brennan ::: (view all by) ::: September 16, 2004, 11:31 AM:

Steve - we could get into a discussion about the difference between EBITDA (rEvenue Before Interest Taxes Depreciation and Amortization), Net Income, and "Profits", but this isn't the place or time. Taxing Net Income is probably the fairest way, because it takes some account of the capital structure of the company, whereas EBITDA is the best way to compare companies operations. Generally, however, taxes have nothing to do with pricing.

Prices are, on the whole, set by the market in non-monopoly/oligopoly situations, and suppliers as well as buyers are price takers. Cost-based pricing only happens in the public sector, regulated industries (e.g. olde-time utilities), and at badly run companies.

It can be shown directly that consumption taxes (e.g. sales taxes, VAT) raise prices and lower demand. The effect of corporate taxes on product pricing is less direct. Think about that the next time someone like Hastert suggests replacing the income tax with a consumption tax.

And who said that companies shouldn't make money? You seem to be the one carrying the archetype that liberals think private companies should be charaties.

#136 ::: Jonathan Vos Post ::: (view all by) ::: September 16, 2004, 11:57 AM:

Larry Brennan:

You are right, in that every corporation where I had access to executive management (not easy in those I've worked for in the Fortune 100, but I did) explicitly said that they were focused like a laser on EBITDA. They had secondary concerns, such as growth of revenue, decreasing churn of customers, decreasing cost of acquiring a new customer, and the like; but EBITDA was the mantra.

I firmly believe that corporations should make money. I believe that the 75 year war between capitalism and Communism in the 20th century was decisively won by Capitalism. But unmoderated capitalism has flaws, where odd bedfellows such as the Pope, the Ayatollah, and the Unibomber agree. I think that our thread is dealing with the boundaries of Market Capitalism in a usually Representative Democracy, where people of good faith may differ.

#137 ::: Randolph Fritz ::: (view all by) ::: September 16, 2004, 12:56 PM:

"Enron was an outlier."

Then what were Tyco, Worldcom, Global Crossing, Adelphia, ...?

"Also outliers."

A few billion here, a few billion there...

#138 ::: Randolph Fritz ::: (view all by) ::: September 16, 2004, 01:01 PM:

David, that article is a scare story, running multiple issues together. Here's what I believe to be the case:

(1) The W tax cuts are very bad. (Notice: not Soc Sec.) They will lead to disaster unless repealed or unless there are spending cuts. The amount of the cuts is roughly the amount of Soc Sec + Medicare. (Source: Paul Krugman)

(2) Social Security pensions require modest tax increases to maintain.

(3) Medicare, like all health insurance programs, is suffering from rising costs. This is a very big issue, and important, but separate from Social Security pensions.

#139 ::: Larry Brennan ::: (view all by) ::: September 16, 2004, 01:43 PM:

JVP is quite right about people of good faith being able to differ. As I look back at my last couple of postings, I notice an uncharacteristic number of typos and misspellings - surely a sign that I've gotten pretty exercised on this issue.

One of the problems is that I, like many other liberals, have become very sensitive to having my motives, loyalty and grip on reality challenged by the Orwellian tactics of the right. I’ve gotten my buttons pushed pretty thoroughly, and I see myself as having a moderate position on programs like Social Security and the regulation of businesses. On the whole, I believe that the market is a pretty good way of distributing goods and services. (The labor market, however, doesn’t work so well – too much information asymmetry.) And I believe in individual liberties, with all my heart. Perhaps more than a lot of other folks who call themselves liberals or progressives.

But folks who call government “parasitic and predatory” and dismiss signs of widespread fraud in accounting practices and market manipulation as mere ”outliers” make my blood boil. Largely because folks like this have inserted their poisonous rhetoric into the mainstream media, thus sowing the seeds of destruction of one of the best societies that humankind has managed to create. It’s a doctrine that says cooperation is for suckers. Charity is for fools. Greed is all, and is a virtue. Hooray for me, and f*ck you. And if Grandma didn’t or couldn’t save, and her kids can’t support her, she deserves to starve to death. Maybe it might make sense to a 13-year-old, but not to any reasoning adult.

The reason I can throw a light switch and expect the bulb to come on is because of social and economic cooperation. Heck, the reason that there’s a light switch and a light bulb (and even a generator and fuel if you think being off-the-grid is a virtue) is because of cooperation. Not just market forces. Market forces might make the light bulb, but it sure as heck wouldn’t have brought about rural electrification, or the interstate highway system, or centralized container ports, or a host of other things that we rely on, directly or indirectly in our daily lives.

I believe that it’s not too late to repair the damage done by those who would shatter the ties that bind us together. I’m willing to do the heavy lifting, but perhaps I should leave it to people with cooler heads to try to persuade the Randites, Libertarians and other true believers in the destruction of social obligations that there’s a better way to live. And that they’re welcome at the table, any time.

#140 ::: David Bilek ::: (view all by) ::: September 16, 2004, 02:13 PM:

Randolph: I know its a scare story, but that doesn't necessarily mean that its *wrong*. You told me what you believed to be true, but you didn't say exactly what is wrong with the numbers in the article.

Neither did the original post. I keep reading stories, which appear to have facts which check out in them, that make the situation appear dire. Now some people are saying it isn't as dire as all that... but are offering no facts. I'm not sure what to think.

#141 ::: Steve Eley ::: (view all by) ::: September 16, 2004, 02:31 PM:

Larry Brennan wrote:
One of the problems is that I, like many other liberals, have become very sensitive to having my motives, loyalty and grip on reality challenged by the Orwellian tactics of the right. I’ve gotten my buttons pushed pretty thoroughly, and I see myself as having a moderate position on programs like Social Security and the regulation of businesses.

"Everyone's a radical but me and thee, and I'm not so sure about thee..."

Seriously, man. While it always warms me to see another passionate moderate, you're pointing your flamethrower in the wrong direction. I basically agree with you. Helping people == good. Market forces are not the total picture. Yes and yes. What burns me up is when you say "folks like this" and generalize my positions for me. Just because I play Devil's Advocate and occasaionally argue in favor of business, it is incorrect and offensive to conclude that I'm a right-wing nutball who despises all regulation, wants Social Security shut down, and to use your words, thinks Grandma deserves to die. I have explicitly said otherwise, repeatedly, in this thread.

I didn't start all this Enron and corporate chatter, though I may have made a mistake by feeding it. When I said they were "outliers," I meant it in the sense of numbers and degree. Most companies don't deliberately lie on their earnings reports. I sincerely believe that. That does not mean it's not a problem, and it does not mean that the companies who do lie can't inflict tremendous damage on people's lives. I agree with Tom Whitmore, the problem is major. It's why financial regulation is important. Yes, yes, and hell yes. It's my sincere hope that all the people involved get serious jail time in serious prisons, to discourage other companies from even thinking about this, so we can move onto all the other self-destructive bad ideas in business. (CEO compensation would be a good start.)

Of the original issue, Social Security, I never said I wanted government assistance shut down. I said Social Security as it exists now is poorly implemented. I've elaborated on that in other posts. It's not enough for the people who need it, because it goes equally to the people who don't need it, and I do think there's a real danger posed in creating an atmosphere of total trust in Social Security if it dissuades people from investing in themselves. I'd like to see everyone cared for, sure. But I'd like to see a way to do it that actually works and that offers a better benefit for the cost.

"Poisonous rhetoric" there, huh? Am I really such a right-wing bastard? I wasn't the "parasitic and predatory" guy, and I won't try to defend him. But you pointed your invective at me, characterizing a grand and wrong position from a single word, and I can't let your obscene portrait of me stand.

I've never tried to characterize you. I've responded to your words, arguing details (albeit few of them, because I think you're basically right), but I've never made any assumptions about what might be in your heart. You think you can do that with me? Well, you're wrong.

Next time argue with what I say please. And lay off the "You want Grandma to die" shit, because I'm supposed to be writing Oracle code right now at one of those big heartless corporations and really don't have the time to keep typing this over and over.

#142 ::: Jules ::: (view all by) ::: September 16, 2004, 02:52 PM:

Now what's wrong with this idea? Anything I'm missing?

The first problem is that it wouldn't actually reduce taxes -- the same amount of tax would have to be paid either way in order to [attempt to] balance the budget.

The second is that the average voter would see more of their money going on income tax, ignore the fact that products they buy have become cheaper, and decide they didn't like the change. This is the way most people think. Therefore, this scheme would be a massive vote loser.

Your scheme does have one benefit -- from my analysis, I think it would make locally produced goods substantially cheaper than imports.

#143 ::: Larry Brennan ::: (view all by) ::: September 16, 2004, 02:59 PM:

Steve, sorry. Not all of what I said was directed at you, and none of it personally. I think you got caught in the buckshot-spray that I was pointing at the Norquist crowd. And I didn't attribute the "poisinous and predatory" line to you, but I will admit to unfairly grouping you with its author, implicictly if not explicitly.

I think we just fell into a bad dynamic. Let's try again. "Hi. My name's Larry, and I'm a slightly left-leaning moderate. Let's try to find some common ground, and then we can talk constructively around the edges of our positions."

#144 ::: Steve Eley ::: (view all by) ::: September 16, 2004, 03:41 PM:

Larry Brennan wrote:
I think we just fell into a bad dynamic. Let's try again. "Hi. My name's Larry, and I'm a slightly left-leaning moderate. Let's try to find some common ground, and then we can talk constructively around the edges of our positions."

Hi. My name's Steve, and I'm a slightly right-leaning moderate. Er... I realized about seven months ago that I can't vote for Bush. Does that help? >8-> (Really, I can't understand why conservatives think he's one of them. Kerry's a better conservative than he is. My corgi's a better conservative.)

On Social Security: we've agreed on some things already, but how 'bout if I posit that I'd feel better about the program if it really was a separate and autonomous program, like the Federal Reserve or Fannie Mae, and not part of the general fund and subject to every whim of every talking head in every marble building in Washington?

I have other thoughts too, but let's start with one. Of course nothing will change until the current system truly becomes untenable (even Bush's half-assed fractional privatization scheme won't actually happen), but it's fun to talk about.

#145 ::: JeanOG ::: (view all by) ::: September 16, 2004, 04:41 PM:

(Really, I can't understand why conservatives think he's one of them. Kerry's a better conservative than he is. My corgi's a better conservative.)
A redefinition of terms that's been going on for a couple of decades now.

When I reached voting age and started keeping up with politics, I was a moderate. I agreed (and disagreed) about equally with both sides. Now, I'm a liberal. And all without much of a change in my actual positions on most issues. :D

#146 ::: Randolph Fritz ::: (view all by) ::: September 16, 2004, 06:27 PM:

David, a lot of the dispute over Social Security and the W. tax cuts is over basic economics, and you can work out the answers from basic texts, like Samuelson and Nordhaus Economics, and the published numbers. To see it laid out, I recommend Krugman--he even cites sources. Try The Great Unraveling or visit The Unofficial Paul Krugman Archive. In blogs, Brad Delong's Semi-Daily Journal and Crooked Timber are also good on economic issues, and they often discuss opposing viewpoints--Delong in particular often gives numbers.

I don't know that anyone's really good on healthcare. Part of the problem is widespread corruption and Kuttner gives that some coverage in Everything For Sale. Another part is that socialized medicine really is more economical than the US system, but I don't have a good cite on that.

Ultimately, though, a big part of the problem in health care is that increases in wealth and technical abilities have brought us to terra incognito; we have health problems that no-one even dreamed of a century ago. I know there's a lot of work being done on this, but I don't know the names even of good summaries.

I hope this helps some.

#147 ::: Daniel J. Boone ::: (view all by) ::: September 16, 2004, 07:02 PM:

I'm the "government is predatory" guy. As for:

"It’s a doctrine that says cooperation is for suckers. Charity is for fools."

That dog just won't hunt. I'm all for cooperation and charity and (as I said in my first post) liveable communities. I surely do disagree with your implicit assumption that government is necessary to cooperation and charity and civil society, but your facile ascription of those evil beliefs to me assumes away the argument we actually have between us. I'm only that evil guy if your argument turns out to be correct -- which I fervently don't think it is.

I'm off for ten days of road trip and moose hunting, so somebody else gets the last word.

#148 ::: Brad DeLong ::: (view all by) ::: September 16, 2004, 10:15 PM:

Well, the way I look at it (and this *is* what I do at my day job), we think that the promises and commitments the U.S. government has made and its standard operating procedures for setting spending amounts commit us to an average federal spending level of 26% of total production over the next two or so generations. We know that number will be off--it might be 24%, it might be 28%. But 26% is the number we should have in our minds when we plan.

Now taxes are currently set so that, if standard operating procedures for tax break extension, et cetera, are followed, the federal government will collect some 18% of total production in taxes. 18% is a lot less than 26%.

We as a society have two choices. We can either ignore the gap between 18 and 26 until the foreigners we borrow from lose confidence that we will ever solve it, and our economy and currency go smash in the way that Argentina's seems to every generation, that Mexico's did in 1994, that Germany's did in 1923, and so forth. Or we can take steps to close the gap between 18 and 26. And the sooner we start to take those steps, the easier things will be.

Let's assume that we decide not to let the economy and currency go smash, and that we take option 2. First, we wonder "Where did this gap come from?" Well, if we did not have the Bush tax cuts--or if we let the Bush tax cuts expire--we will be at 21 instead of 18 on the tax side, and face a long-run fiscal gap of not 8% but 5% of total production, a smaller problem.

In fact, if we hadn't done the Bush tax cuts, we would be (as we were in 2000; remember?) in surplus, with taxes at about 21 and current spending levels at about 20 percent of total production. But even though we would be in current surplus, we would not be in long-run surplus. The aging of the population and greater life expectancy is going to push Social Security spending up by about 2% of total production. Better and more costly medical technology coupled with the aging of the population and greater life expectancy is going to push Medicare and Medicaid spending up by about 4% of total production.

Taking care of the 2% of production rise in the long-term funding gap coming from Social Security is straightforward. Either cut benefits (by raising the retirement age by 3 years, by cutting everyone's benefits by about a quarter, by shifting some of the risk that the stock market will tank from the government to Social Security beneficiaries by turning some of their benefits into private investment accounts, or some combination) or raise Social Security taxes (by either removing the current lid on Social Security taxes, by increasing the tax rate by a couple of percentage points, or some combination).

The increase in the gap coming from the rise in Social Security spending is thus a serious, but a fixable problem. The system only goes smash if we take no steps over the next two generation to either cut benefits or raise taxes.

The increase in the fiscal gap coming from Medicare and Medicaid is a bigger--and harder--problem. All trends suggest that the next two generations will see extraordinary improvements in medical technology coupled with large increases in medical costs. We believe that people who are sick should be treated: we don't think that the poor should die in the street because they cannot pay their hospital bills. But somebody has to pay. So either we grit our teeth and accept very large tax increases to preserve an income-independent right to medical care, we keep our taxes where they are and begin to ration life-saving and life-extending medical care bigtime depending on the thickness of your wallet, or we think up some clever scheme to make the medical system work much much better so we can get better medical care at much lower cost. I vote for the "clever scheme" option myself, and there are bunches of people working for John Kerry who are trying to think of what the clever scheme should be (in contrast to the people working on health care for George Bush, who seem more interested in boosting the prices of drug companies and then jumping to drug-company jobs). But I'm not optimistic. I think we have a very hard social choice before us over the next couple of generations.

Although the choices are hard, we can make them. We do have options. Decide what to do about health care, decide how much in the way of benefit cuts and how much in the way of tax increases we want for Social Security, let the Bush tax cuts expire--and we have a functioning, solvent government with in all probability a healthy, rapidly-growing economy.

But if over the next generation or so we fail to make our social decisions about health care, fail to accept either benefit cuts or tax increases in Social Security, fail to let the Bush tax increases expire, continue to elect this modern bunch of Republicans.... Well, there is no Qeng Ho coming in from outsystem to assemble at Brisgo Gap and save us from the consequences of our own follies of governance.

#149 ::: Teresa Nielsen Hayden ::: (view all by) ::: September 17, 2004, 10:51 AM:

And here I was just wishing that Brad DeLong would show up and explain this. Thank you, Brad.

#150 ::: Steve Eley ::: (view all by) ::: September 17, 2004, 11:02 AM:

Brad, thank you for that post. I believe that was the most rational and lucid summary of Social Security economics I've ever read.

Of course I'll have to take your numbers at face value, as I don't have the background to argue with them; but assuming they're right your conclusion and presented options seem inarguable. They seem to say that the optimists and the pessimists are both right: I'm right when I say Social Security is screwed in its present state, and Teresa is right when she says that's not inevitable.

Thanks for taking the time to make it clear.

#151 ::: fidelio ::: (view all by) ::: September 17, 2004, 12:41 PM:

If I read this right, it's not just Social Security that's potentially screwed, but our entire economy. Which I've been hearing and reading, this place and that, but - Eeeep!

#152 ::: Brad DeLong ::: (view all by) ::: September 17, 2004, 12:49 PM:

Well, we're only screwed if we fail to make three social decisions:

(1) Are we going to tax ourselves a lot more to pay for Medicare over the next two generations, or are we going to start rationing doctor visits and drugs? (And there is the "clever scheme" option, if we can figure it out.)

(2) Are we going to raise Social Security taxes, cut Social Security benefits, or do a little of both?

(3) Are we going to let the Bush tax cuts expire? If not, what $300 billion a year of other federal spending are we going to cut?

If we as a nation answer these three questions over the next generation--if we answer them any way--we are fine.

Our big problem, of course, is that George W. Bush and the modern Republican party are trying to keep us from answering these questions out of the fear that even posing them will be to their political disadvantage.

This is, I believe, only one of the many reasons that working to keep George W. Bush from being elected this November is an issue not of partisanship but of patriotism.

#153 ::: David Bilek ::: (view all by) ::: September 17, 2004, 02:16 PM:

Thanks, Brad. That's the sort of thing I was looking for. I don't think that people are willing to make the hard decisions yet, so I suspect the problem is only going to get worse.

#154 ::: Steve Eley ::: (view all by) ::: September 17, 2004, 04:18 PM:

David Bilek wrote:
Thanks, Brad. That's the sort of thing I was looking for. I don't think that people are willing to make the hard decisions yet, so I suspect the problem is only going to get worse.

My intuition (and this is only intuition -- I don't have a big sheaf of facts to back me up) is that we will fail to make those decisions until it's almost too late, and that the best outcome we can expect is that we'll see the United States slowly fade into becoming a second-class nation over the next thirty years or so. (Unless the Bush policy of closing the U.S.'s doors to foreign students, scientists, and businessmen in the name of "security" accelerates the decay. This is one thing I really blame him for.)

We'll become what England is now: still important, still an interesting place, but not a leader, and wrapped deeply in nostalgia for the days when we did lead. It's the nature of all empires to die, and we are an economic and cultural empire. We've had our hundred years, it's somebody else's turn.

Does this bother me? Actually, no, not really. I think in the long run it'll be better for us and the world -- so long as we go out with a whimper, not a bang.

#155 ::: David Bilek ::: (view all by) ::: September 17, 2004, 06:50 PM:

Steve: I'm not so sure, simply because I don't see who could replace the US as a hyperpower. China's demographic problem will occur later than America's, but it will be a lot worse. Europe and Japan are already hitting theirs... and they will be a lot worse. India maybe? Who else? Certainly not anyone in Africa or South America. Perhaps the world is due for another spell without a completely dominant power or powers.

#156 ::: mythago ::: (view all by) ::: September 19, 2004, 01:51 AM:

You needn't worry. Silicon Valley money will insure that foreign scientists and engineers, who can be kept on an H1B leash, will be permitted to enter the U.S.

#157 ::: Jim Glass ::: (view all by) ::: September 19, 2004, 05:40 PM:

"Our big problem, of course, is that George W. Bush and the modern Republican party are trying to keep us from answering these questions out of the fear that even posing them will be to their political disadvantage."

This is funny -- Democrats run advertisements of Bush pushing old people in wheelchairs off of cliffs in response to Bush forming a bi-partisan commission headed by Democratic Senator Moynihan (the long-time champion of SS and co-author of its current version) to consider future options for it.

And it is the *Republicans* who want to block even consideration of such options. Ha! Ha! ;-)

Hey, if the Democrats are so virtuous in posing questions about raising taxes, cutting benefits, etc., to fund the SS and Medicare gap, then *name one* who is actually do so! Kerry?? Nooo ... Sens Moynihan, Kerrey (the other) and Breaux all did -- and were all pushed out by their own people. Who are there replacements? Name them!

How about even in the commentary sphere? Is Krugman publicly pushing the need to raise taxes/cut benefits? Is Blinder? Is DeLong?

And is it really and truly *Republicans* who stop such honest and forthright men from even posing such questions?

BTW, there's a fourth option for easily saving the nation's finances that is the true progressive solution that Progressives dare not mention.

Here it is: take *seriously* the progressive claim that these programs are "social insurance" meant to protect against being "left penniless in your old age".

Then note how those over age 60 now are the *wealthiest* age class by far and growing more so every day, 15% millionaires by assets today, with the percentage rising rapidly and going over 20% in the forseeable future.

Then realize how many of those millionaires (like Warren Buffett) are collecting transfers worth hundreds of thousands of dollars from the poor (like Warren Buffett's employees at Dairy Queen) through their payroll taxes. Just how "progressive" is that??

Well, if you decide that Warren and Bill and their millioniare peers really don't need to *collect* on social insurance against being impoverished, then guess what -- the SS deficit is entirely gone and the Medicare one is largely so. No crisis exists.

And it's the truly "progressive" solution too!

Expect the polticians to hit on it very close to the date on which SS turns cash-flow negative, and so starts costing them money instead of bringing them more money to spend, while "saving" it in the trust fund.

#158 ::: Jim Glass ::: (view all by) ::: September 19, 2004, 06:06 PM:

This is amusing too...

"social security is not an income transfer program. That's why it's not means tested. Social security is a risk pooling program, like any other sort of insurance."

Well, "any other sort of insurance" pays off only in the case of an "insurable event". E.g., everyone has auto insurance, but only those who suffer auto casualties collect -- even if they own cars past age 65. Among all those who have fire insurance, only those suffer fires collect. Etc.

Social Security as "insurance" insures against exactly what ... poverty? This is no doubt the reason why Warren Buffett is collecting it now. ;-)

For the record, even the SSA web site describes the SS retirement benefit, 85% of program costs, as a "defined benefit pension plan." It is indeed a transfer program, from the young to the old -- who today as a group are much richer than the young -- and it is nothing else.

"The administrative costs are less than one percent, you won't find a private pension fund that does better."

False. SS is just a big checking account managing no real assets, and 1% is hardy cheap for that.

In contrast the private accounts in the Federal Thrift Savings Plans charge 0.1% (good enough for government employees!) index mutual funds charge a typical 0.2%, and private sector multi-employer defined contribution plans according to the Department of Labor charge an average 0.8%.

All less than SS charges for running a checking account to transfer tax revenue from the young (and on average much poorer) to the older (and on average much richer, and growing more so).

#159 ::: Clark E Myers ::: (view all by) ::: September 19, 2004, 10:02 PM:

(1) Are we going to tax ourselves a lot more to pay for Medicare over the next two generations, or are we going to start rationing doctor visits and drugs? (And there is the "clever scheme" option, if we can figure it out.) Brad DeLong

Sadly I don't think that's an exclusive or. (obs SF, lots from Blade Runner the book to Patchwork Girl) I do agree with the implication, if I am taking it as intended, that no one has to date figured out such a "clever scheme". The lack of any such existing "clever scheme" implies that agitating for health care on any particular model as the ideal is wrong too. This does not foreclose agitating for a given change as an improvement but it does foreclose advocating any given existing model as the end of the subject.

#160 ::: Marilee ::: (view all by) ::: September 20, 2004, 01:05 AM:

Social Security *is* means tested to some extent. I have both SS and private disability and they both decreased their awards because I had the other money.

#161 ::: Arlen ::: (view all by) ::: September 24, 2004, 04:38 PM:

"Sens Moynihan, Kerrey (the other) and Breaux all did -- and were all pushed out by their own people. Who are there replacements? Name them!"

Moynihan: Retired voluntarily (IOW, he wasn't pushed, he jumped). Seat now held by Hilary Clinton.

Kerrey: Retired voluntarily (again). Seat now held by Ben Nelsen.

Breaux: This reference puzzled me. If you're referring to John Breaux of Louisiana, who helped create the recent bipartisan plan to reform Social Security, you'll find him in the Senate chambers. He's still there. He neither jumped nor was pushed. His party members must have decided to punish him in place by making him the party's deputy whip and ranking Democrat on the social security committee. This, of course, will be his final year, as he is retiring (along with several other notable members of the Senate; after years of Eternal Senator, that august body is now starting to turn over about every 20 years or so). It's impossible to name his replacement, as the people of Louisiana have not yet chosen him.

Just wanted to inject some factoids into the discussion. Please feel free to continue.

In fact I'll do some of the continuing. I want to be clear about not blaming this on Gingrich, just using him as a chronomark, but many of the old hands remarked that about the time of Speaker Gingrich, politics in Washington turned ugly, and it's both harder and a lot less rewarding to struggle to get anything worthwhile accomplished. This cry came from both sides of the aisle, so it's hardly an indictment of one party or another.

As the amount of negative advertising grows, it becomes harder and harder for any real legislative work to be done. I shudder to think of what a modern ad agency would do to Henry Clay. After all, it's a lot safer and easier (and more fun) to criticize and call names than it is to actually do anything (once again, this is a bipartisan criticism).

And the American voter responds well to this sort of thing; let's face it, if negative ads weren't effective, they wouldn't be used. Although there are signs the audience is wearying (finally) of the mudbath the electoral process has become, the sad fact is that negative ads are still one of the most effective weapons in a campaign arsenal. (One of the most cheering signs here was when, for the second time, a contested primary was won by the least negative canndidate. It gives me hope.)

Negative ads don't have to be truthful, either. Too many voters will just nod sagely and say "No smoke without fire, I allus say," no matter how ridiculous the ads. (Just ask Max Cleland.)

Social Security is known as the "third rail" of American politics precisely because both parties, along with the Grey Panthers and several other organizations will not hesitate to demonize *any* actions on that front.

#162 ::: Randolph Fritz ::: (view all by) ::: September 25, 2004, 03:17 AM:

Brad, thanks for the basics. Medical care...I was under the impression that the explosion in cost is not actually due to the costs of medical technology, though that is vastly overpriced, but rather to the costs of providing supportive care for the chronically ill--people who would have died in times when medical knowlege was less advanced. Is that impression valid?

#163 ::: Marilee ::: (view all by) ::: September 25, 2004, 03:41 PM:

Randolph, Kaiser told me recently that they've spent $2M on me so far. I've had lots of procedures & surgeries, but the vast majority of that money went to room & board in hospital.

#164 ::: Randolph Fritz ::: (view all by) ::: September 25, 2004, 06:26 PM:

Thanks, Marilee. I'm not quite sure how to categorize hospital room and board in my very modest division of expenses. On the one hand, a big chunk of "room" probably goes to high-quality 24-hour nursing. On the other hand, hospitals are full of enormously expensive equipment and technology, and that shows up in "room", too. On the gripping hand, the economics of medical care encourages medical centers to become property developers, and bill those expenses as part of "room", too. There have to be monographs on this, surely?

#165 ::: Clark E Myers ::: (view all by) ::: September 25, 2004, 10:24 PM:

Notice that e.g. Emory in Atlanta has used an associated motel to meet room and board needs at motel prices where patients needed no more. This works e.g. for people with upcoming scheduled surgery or scheduled tests who may have specific last meal or diagnostic cocktail needs and for other such.

The scheme also works for transition out - especially where there is no appropriate caregiver at home to ease a return home.

This scheme also works because Grady does the heavy lifting in the Atlanta emergency and charity (often the uncooperative patient) world.

Mr Fritz I'd be curious to know about the vastly overpriced costs of medical technology?

I do understand that interference in the market - price caps for medical services by intake physicians - has resulted in group practices installing otherwise excessive numbers of high priced technology - MRI say - so that the intake physician can get a rakeoff from ordered tests (rather than referring to a shared facility with a higher duty cycle but unshared billing) .

Is that what you mean?

I've credited the reports that Canada and the U.K. have a relative shortage of care available at their respective prices. That is rationing by delay rather than market price results in a supply of medical care insufficient to produce optimal medical results - care delayed is care denied. Not to say that price rationing is ideal either but to say the UK or Canada example of lower price has its own flaws.

I've credited reports that medical professionals, including especially nurses, are fleeing Africa for England. Said to be because the professionals cannot obtain care for themselves and their families in their home countries.

Do tell me where is the ideal and appropriate price written or charged?

#166 ::: Randolph Fritz ::: (view all by) ::: September 26, 2004, 04:32 PM:

Clark, you "sound" nasty, so I hesitate to answer you. And I really don't have information that you are likely to credit, anyway. What I do know well, I think you are likely to dismiss out-of-hand as either unimportant or invalid. So I'm going to let your remarks go for now; I may eventually know enough about your issues to give a more complete answer.

#167 ::: Clark E Myers ::: (view all by) ::: September 27, 2004, 01:41 AM:

Sorry to sound nasty it is a prickly subject.

As today's (26 Sept) New York Time has it

THE nation's health care bill is high and headed higher. Yet most hospitals lose money or barely break even.....Even if you could take all the waste out of health care, the spending would still go up because we have a technology-intensive system that will continue and it is delivering a lot of benefits in terms of longer, healthier lives," said David Cutler, a health care economist at Harvard University.

In one case where I have some inside information a plan by venture capitalists to put twenty million dollars into follow-on to grant funded research was killed because it involved capitalizing on publicly funded research - and taking venture capital funded results private for profit. This was found unacceptable although all, 100% of the publicly funded research results were published. Someday but not this decade the follow-on will be done on future grants and all in the public domain. There are real health hazards in the meantime to denying the profit motive too.

#168 ::: Jonathan Vos Post ::: (view all by) ::: September 27, 2004, 10:34 AM:

Part of my cynicism about retirement benefits comes from my being screwed by the aserospace industry as a whole. I've explained briefly in previous postings. The crux is that I worked roughly 6 years for Boeing and roughly 5 years for Rockwell's Space Transportation Systems Division (STSD). When Boeing bought STSD, that should have become roughly 11 years of vesting in a retirement benefit package. But the lawyers said otherwise, and claimed that I had zero benefits.

But this week I got snailmail from USA: "United Space Alliance." USA is the consortium that launches space shuttles, and includes Beoing (and its former Rockwell unit) plus Lockheed-Martin (where I'd worked without benefits as a consultant). USA stated that I was "fully vested" in a benefit package, but gave no figures. I'll investigate. Maybe the rules have changed.

There are other industries that moves people around from one company to another, resetting seniority to zero each time. The Movie/TV industry, for members of Writers Guild of America, West, has its own interesting approach. But I've got to get to work now, and shall ask the readers if they know others.

#169 ::: Clark E Myers ::: (view all by) ::: September 27, 2004, 01:28 PM:

Joining in thread drift - remember the Teamster's Pension Fund which furnished fine benefits but not necessarily to Teamsters. Union contracts provided for large employer contributions on behalf of union members.

The gimmick there was requiring continuous contribution to the fund in an industry where stable employment was unusual. Technically during periods of unemployment or non-driving work the trucker could continue to contribute out of his own pocket but of course few did. Thus fewer drivers collected freeing up the funds for looting.

#170 ::: Randolph Fritz ::: (view all by) ::: September 28, 2004, 01:57 AM:

Clark, as you say it's a prickly subject, and I'm not a gentle person. Apology accepted.

In any event, the two examples I was thinking of were CPAP machines and hearing aids, both of which I know are priced at something like 5-10 times similar non-medical equipment. It's pretty blatant, and it seems to be typical. Today, I went to pick up my perscribed diabetes test strips. Now, my insurance covers these, since it's so hard to get people to reliably manage chronic conditions like diabetes and since unmanaged diabetes makes for many other medical problems, a health-promoting insurance industry would make them cheap, perhaps even cover their entire price. My reasonably good and very expensive insurance does not. I made a snarky remark about it to the pharmacist, and she replied, "They don't any money if you're healthy." And of course she's right.

There is no financial incentive for the health insurance industry to improve health. The incentives, rather, encourage the creation of a large chronically-ill population. I don't mean that health insurance companies deliberately set out to make people ill. But they can hardly deliberately undertake policies against their financial interest and so they do not use their huge financial resources to improve general health. They often even omit basics--my insurance does not even pay for immunizations. And they paid for several years of expensive diabetes-management drugs, but not a penny for weight loss or diet improvements--I had to work that all out for myself. There is no doubt what was better for my health--but that, despite all I pay them, is not what they would provide. So I have come to believe that the explosion in health care costs is not a direct result of medical technology, but rather a result of widespread attitudes towards health and health-care finance policies.

#171 ::: Steve Eley ::: (view all by) ::: October 04, 2004, 02:46 PM:

I know this is essentially a dead thread, but anyone who was as struck as I am by Brad Delong's analysis may want to check out the cover story on today's USA Today.

Nutshell: if you divide all of the country's unfunded government liabilities -- including Social Security and Medicare -- by U.S. household, then the average household owes $473,000 just to cover public debt. The story's conclusion: raise taxes now, or slash benefits now, or we're screwed.

#172 ::: Randolph Fritz ::: (view all by) ::: October 05, 2004, 07:37 PM:

And today's New York Times has an article on unfunded pension liability. Get it while it's free!

#173 ::: Jonathan Vos Post ::: (view all by) ::: October 12, 2004, 05:05 PM:

The Wall Street Journal [12 Oct 2004, p.A22] has an op ed piece: "A Nobel Tiger by the Tail" by David R. Henderson.

It puts in context the Nobel Prize cowinner this week, Edward Prescott's, work on time inconsistency: "Here's another example of time inconsistency: the Social Security nightmare in our future. In a November 2003 paper, Mr.Prescott shows that the reason the average American age 15 to 64 works 50% more hours than his counterpart in Germany or France is that marginal tax rates in those countries are about 60%, whereas in the U.S. they're more like 40%. Mr.Prescott points out that in the early '70s, when marginal tax rates between Western Europe and the U.S. were almost identical, so were working hours."

"How does this relate to Social Security? Many people anticipate keeping promises to the elderly by raising Social Security taxes dramatically in the next 20 years. But, writes Mr.Prescott, 'The high labor supply elasticity [work hours fall as tax rates rise] does mean that... promises of payments in the current and future old cannot be financed by increasing tax rates....'"

#174 ::: Epacris ::: (view all by) ::: October 20, 2004, 05:59 AM:

This article sounds rather more hopeful - tho' I can't critique it with any local knowledge.

Social insecurity
Commentary: Bush, Kerry would both worsen 'problem'
By Dr. Irwin Kellner
9:38 AM ET Oct. 19, 2004

HEMPSTEAD, N.Y. (CBS.MW) -- By going along with the conventional wisdom that the Social Security trust fund will run out of money if something isn't done soon, both presidential candidates are scaring the American people when they could be reassuring them if they actually studied the issue ...

#175 ::: Epacris ::: (view all by) ::: October 20, 2004, 06:00 AM:

This article sounds rather more hopeful - tho' I can't critique it with any local knowledge.

Social insecurity
Commentary: Bush, Kerry would both worsen 'problem'
By Dr. Irwin Kellner
9:38 AM ET Oct. 19, 2004

HEMPSTEAD, N.Y. (CBS.MW) -- By going along with the conventional wisdom that the Social Security trust fund will run out of money if something isn't done soon, both presidential candidates are scaring the American people when they could be reassuring them if they actually studied the issue ...

#176 ::: Epacris ::: (view all by) ::: October 20, 2004, 06:03 AM:

Botherit!! Sorry. for the double posting.
[Must NOT flip 'round windows & press buttons without waiting & checking.]

#177 ::: Randolph Fritz ::: (view all by) ::: November 15, 2004, 04:38 PM:

Today's New York Times offers an article on the Pension Benefit Guaranty Corporation, the pension industry's equivalent of the FDIC/FSLIC. It is being starved for funds and will run into problem in some years. I want to see the Repulsicans raise taxes to fund it--hah!

http://www.nytimes.com/2004/11/15/national/15cnd-pens.html

#178 ::: Randolph Fritz ::: (view all by) ::: February 11, 2005, 10:23 PM:

Paul Krugman overview of this subject.

#179 ::: Renatus says, spam ahoy! ::: (view all by) ::: February 23, 2010, 09:08 AM:

What an odd thing to spam, too.

#180 ::: abi ::: (view all by) ::: February 23, 2010, 09:12 AM:

Thanks, Renatus.

#182 ::: TexAnne sees spam ::: (view all by) ::: December 06, 2010, 04:37 PM:

La la la.

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