December 10, 2004
President Bush Announces Blatant Lie
Reuters reports the following in an article entitled, Bush Says No Payroll Tax Hike for Social Security:
President Bush ruled out raising payroll taxes to help pay for Social Security reform on Thursday, leaving him few options other than a sharp increase in government borrowing to bankroll transition costs estimated at up to $2 trillion.
"We will not raise payroll taxes to solve this problem," said Bush, rejecting a solution advocated by some experts and Republican lawmakers.
The grand lie is very easy to detect. If the reform adds up to $2 trillion dollars to the national debt, the taxpayers will see an increase in their payroll taxes, just not this year. The current national debt is over 7.5 trillion dollars. This reform will bump that number to 9 or 9.5 trillion. If the President and his GOP led Congress hold to his promise of cutting the deficit in half over the next 5 years, the deficits each of those years will still amount to at least an additional 2 trillion dollars added to the national debt. That puts our national debt at 11 to 11.5 trillion dollars. A trillion dollars is 1,000 billion dollars, so we are talking 11 to 11.5 thousand billions of dollars of national debt.
This kind of national debt will also raise our interest to be paid by taxpayers on an annual basis from over 1 billion dollars a day today, to about 2 billion dollars a day if interest rates rise modestly over the next 5 years. That will put our interest on the debt at about 3/4 of a trillion dollars per year. So, yes, this Social Security reform Bush is considering will, in fact, increase every working person's taxes withheld from their paycheck. The really cute trick though is that these enormous increases in taxes which will be absolutely necessary to reduce rising interest payments and the national debt, if America is to have an economic future, will occur just after George W. Bush leaves office.
Now if you are in the Bush family, the Cheney family, the Haliburton family of investors or any number of other investors in the corporations profiting from higher oil prices or war, there will be no need to be concerned about rising payroll taxes. None of these folks will need a paycheck. What with Republican moves to eliminate the estate tax, a trial run at a moratorium on capital gains taxes, and a host of other shelters for the very wealthy and large investors, these folks have nothing to worry about. But for us who have to depend on paychecks, the sting is coming, and it will keep coming for at least a decade if not decades, as the public catches up with conservative economic analysts who have been saying for a couple years now that these lofty levels of debt are not sustainable.
Posted by David R. Remer at December 10, 2004 03:24 PM$11.5 trillion is more the the U.S. GDP (which is about about $10.45 billion for 2004).
I wonder if Bush even knows how many zeroes are
in a million or billion much less a trillion ?
I wonder if any one in goverment can answer these questions?
Aren’t there any economists in government ?
And where’s the logic some use to say the
economy would collapse if the government didn’t maintain the debt ?
The interest on the National Debt is over 1/3 of the revenues (Excluding Social Security revenues).
If I used that same logic, I’d be sleeping under a bridge.
I wonder if there’s any basic rule, law, or principle about the dangers
of National Debt exceeding GDP ?
Part of the problem is being 17th on this list.
And, of course, all things lead back to the root cause solution.
This from the guy who, just a few days ago, posted an article on the same subject entitled PRESIDENT BUSH DOES NOT HAVE A PLAN.
Now David seems to know just what the plan is and what it will cost.
The grand lie is very easy to detect. If the reform adds up to $2 trillion dollars to the national debt, the taxpayers will see an increase in their payroll taxes, just not this year.
The key word there is if.
I’ve seen very good arguments as to why it would cost that much. But that’s just guesswork because we really don’t know any details do we?
It amazes me how some people will take the opportunity to bash Bush on every little thing he says, even when they readily admit to not having any facts at their command.
Why don’t we wait until the President’s plan, whatever it may be, is completed and made public? Then I’ll argue with you all day about it.
Although if it involves more taxes, I’ll probably agree with you…
TheTraveler, by announcing he would not permit raising payroll taxes while at the same time saying he will save social security, we are beginning to see a small piece of a plan coming together, and, it is a blatant fact that social security cannot be preserved without an opportunity cost at the very least.
We could cut the defense spending by 2/3 and save social security, or we could discontinue all foreign aid and save social security, or even using the veto pen against every dime of pork and waste spending would go a long way. Think those kind of options are on Bush’s radar screen? Me neither.
Hence, it is going to cost American tax payers. The logic is inescapeable. So is his lie.
Posted by: David R. Remer at December 10, 2004 07:23 PMDaniel asked I wonder if there’s any basic rule, law, or principle about the dangers
of National Debt exceeding GDP ?
There is Remer’s principle that says, anytime a nation’s debt exceeds its GDP, the interest on the debt which the nation must pay today to keep from defaulting, for which no job is created, no product made, no government service rendered, will impoverish the quality of life for the people of that nation.
Posted by: David R. Remer at December 10, 2004 07:27 PMDaniel:
$11.5 trillion is more the the U.S. GDP (which is about about $10.45 billion for 2004).
This is in error. You are comparing a current value of the GDP with a future value for the national debt. The nominal rate (real growth plus inflation) of GDP is about 6% which meand GDP doubles roughly every 12 years.
I haven’t looked at Bush’s specific proposal, but if the borrowing were over 12 years, then the debt load would be about 50% of GDP or less than today on a relative basis. My only point is you need to compare apples to apples.
Craig
Posted by: Craig Holmes at December 10, 2004 11:14 PMA point in favor of Bush’s plan is arbitrage. If you follow the 2 Trillion in dollars where does it come from and where does it go?
1. Well it comes from investors, “foreign and domestic”. The money comes out of the government debt market.
2. Where does the money go? It is invested by younger investors. So foreigners loan money to your younger generation to invest in their own accounts. These accounts would go into government bonds (which pay back the investors), corporate bonds or equities.
Since these dollars are locked in for long periods of time (20 to 30 years), investors would be borrowing at lower rates and investing at higher rates.
Two Trillion dollars invested in American enterprise would go a long long way to spirring on economic growth. The results would be incredible.
Even if the stock market crashed in the year these investors retired, they would have so much more to retire on than current Social Security because of the highter growth rate of the stock market.
Craig
Posted by: Craig Holmes at December 10, 2004 11:23 PMTraveler, I award you the understatement of the year award for defining $2 trillion as a little thing.
Posted by: Greg at December 11, 2004 01:18 AMGreg,
Had to go back and re-read my own post on that one.
I was talking about the fact that Bush made a statement, and how some people tend to react, not what he was saying.
There are some people here who would decide not to like apple pies if Bush sad he liked them…
Posted by: TheTraveler at December 11, 2004 01:59 AMCraig,
I wrote: $11.5 trillion is more the the U.S. GDP (which is about about $10.45 billion for 2004).
Craig wrote: This is in error. You are comparing a current value of the GDP with a future value for the national debt. The nominal rate (real growth plus inflation) of GDP is about 6% which meand GDP doubles roughly every 12 years.
Craig,
There’s no error.
I know one figure was 2004 and the other was a projection. That’s not the issue.
The real issue is whether the National Debt will soon exceed GDP.
And, so much of government’s revenues are already
committed to mandatory spending.
It also depends on the rate of growth of each.
Which one is growing faster ? National Debt or GDP ?
In the table below, National Debt is growing much faster than GDP:
YEAR____GDP_____National Debt ($ trillions)
1998 __ $ 9.066 __ $5.526
1999 __ $ 9.470 __ $5.656
2000 __ $ 9.817 __ $5.674
2001 __ $ 9.866 __ $5.807
2002 __ $10.080 __ $6.228
2003 __ $10.390 __ $6.783
2004 __ $10.450 __ $7.546
So, it’s quite realistic that National Debt will soon exceed GDP in a few years.
(1) GDP graph
(2) GDP look up
So, based on the table above, and
Congress’ track record for spending
(e.g. deficits every year for last 44 years)
is there any cause for worry ?
I think there’s reason to be concerned.
Social Security is a concern.
The cost of the War is a concern.
When it rains, it pours.
And, it’s not that there isn’t enough money.
It’s the mismanagement by an uncontrollable and
corrupt government, that will continue to grow
the National Debt until it is a very serious problem.
This could all be easily fixed, but that may never happen.
BTW, I voted for Bush. I’m not proud of it though.
But, I don’t blame him for the National Debt, and
Social Security.
Congress has been deficit spending every year since 1960 (all but a few years since 1900).
The problem is POLITICIANS !
But, to really understand the problem, you have to consider the origin and meaning of the word, POLITICIANS:
_____________________________________________
POLI
1: many : several : much
2: containing an indefinite number more than one
_____________________________________________
TIC
1: a blood sucking parasite.
2: any of a superfamily (Ixodoidea of the order Acarina) of bloodsucking arachnids that are larger than the related mites, attach themselves to warm-blooded vertebrates or tax payers wallets to feed, and include important vectors of infectious diseases (i.e. greed, sloth, etc.)
3 : any of various usually wingless parasitic dipteran flies
_____________________________________________
Thus, POLITICIANS = many blood sucking parasites
So, how do we get rid of these POLITICIANS ?
Posted by: Daniel at December 11, 2004 02:24 AMCraig, why would you include inflation in the equation? Inflation would affect both GDP and debt and interest accumulation equally therefore, it is only a partially relevant factor. The interest on the debt, real time tax on Americans, would be directly affected by inflation as GDP would making it moot in the equation.
Assuming Greenspan and his successor stick to the same yardsticks, inflation would be held at or under 2 to 3% if at all possible.
Posted by: David R. Remer at December 11, 2004 06:35 AMDaniel, just in case you wern’t making a joke:
Middle English politik, from Old French politique, from Latin polticus, political, from Greek poltikos, from polts, citizen, from polis, city.
Posted by: David R. Remer at December 11, 2004 10:19 AMDaniel:
You are still mixing data. The data you used on the left is not Nominal GDP but actual. You have to use Nominal because it adds inflation to the growth rate.
Let me give you an example. Your column on the right is federal debt, and is growing in your figures at a rate of 5.3%. Your figures on the right or GDP and are growing at 2.4%. With that data alone, of course even without Bush’s SS plan debt would out grow GDP.
However is you look at the nominal growth rate of GDP, (Real Growth plus inflation) it is traditionally been about 6%. That means that as long as the growth of debt does not exceed 6%, the country will never on a relative basis be more in debt that it is now.
In addtion, if you take total GDP of about 11 Trillion multiply by 6%, you come up with about $660 billion dollars. If you add the twin deficits together, (budget and balance of payments) it is only important to keep the sum of both below this number on a long term basis. In times of economic weakness it may even be benefitical to go above them as it jump starts the economy. It does need to be dealt with as part of a long term strategy.
In summary, if the sum of the twin deficits is below the nominal growth rate of the economy, our balance sheet is getting stronger, if the sum of the twin deficits is above the nominal growth rate we are in a relative basis getting deeper in debt.
Sorry for sounding like an egghead,
Craig
Posted by: Craig Holmes at December 11, 2004 01:34 PMDavid:
Craig, why would you include inflation in the equation? Inflation would affect both GDP and debt and interest accumulation equally therefore, it is only a partially relevant factor.
Because when making projections into the future debt usually is actual debt. Nominal GDP is actual GDP. GDP quoted is Actual minus inflation.
It is the only way to compare apples to apples.
Craig
Posted by: Craig Holmes at December 11, 2004 01:39 PMCraig,
In the table below, National Debt is growing faster than BOTH Real-GDP or Nominal-GDP:
YEAR____Real-GDP___Nominal-GDP___National Debt
1998 __ $ 9.066 __ $ 8.747 _____ $ 8.526
1999 __ $ 9.470 __ $ 9.268 _____ $ 5.656
2000 __ $ 9.817 __ $ 9.817 _____ $ 5.674
2001 __ $ 9.866 __ $10.100 _____ $ 5.807
2002 __ $10.080 __ $10.480 _____ $ 6.228
2003 __ $10.390 __ $10.980 _____ $ 6.783
2004 __ $10.450 __ $??.??? _____ $ 7.546
The differences in the real and nominal are not so vastly differnt to warrant
more attention than the more serious issue, which is that the National Debt
may soon exceed the GDP in a few years.
The issue is the rate of growth of both, and the percentage of National Debt
as a percent of GDP. National Debt has increased at a faster rate for the
last 4 years, and the percentage of National Debt as a percentage of GDP
is at it’s highest since 1980.
See graph ( http://zfacts.com/p/318.html )
But, anyone (no names) with such a skill for clouding the issues and
obscuring the facts regarding Real versus Nominal Debt and GDP, inflation,
and such, is exactly the sort of smoke and mirrors that has landed
us in the mess we’re in now, but are just the skills needed to land a job in Congress.
What’s really needed is some housecleaning.
Posted by: Daniel at December 11, 2004 04:19 PMCraig,
I see your point. But, putting aside all the nuances of rates, inflation, nominal versus real, etc….
the main point is that the National Debt is getting too big.
Government is competing for the money supply,
and spending a large percentage
of each tax revenue dollar on interest alone.
It’s bad for the economy (and wasteful), and
only helps those investing in the national debt, (which someday could turn out
to be a very bad investment).
And, more so than ever, a large portion of each
revenue dollar is already spent for
mandatory spending (e.g. Social Security, Medicare, etc.)
Also, such a large debt doesn’t put the U.S. in a good position in time(s) of crisis.
It could be and should be viewed as a security risk. Such a large debt and
excessive spending is irresponsible and risks the security of the nation.
Congress and spending is uncontrollable, and their track-record indicates a
high probability that National Debt may reach all time highs (as a percentage of GDP).
See graph showing National Debt versus GDP since 1950.
The National Debt is still increasing,
and another $2 trillion for this fishy
Social Security investing scheme is likely
to cause it to continue increasing for many
years to come.
Daniel:
I like your latest graph. It shows my understanding of the budget verses debt issue well. It also makes your point well that there is an emerging problem.
On the debt being bad idea, I think it all depends. The spending spree in US history was WWII. (The ten years just off your graph). I think we all agree the money was well spent. Debt being good/bad all depends on it’s use. For instance debt to build infrastructure can pay great dividends. Also updating of technology, or for funding education skills.
You are also correct that there are risks to countries just like individuals in debt. Then the question becomes, is the proposed goal for going in debt worth the risk? Are the benefits worth the risk?
This latest amount of debt we have received from Bush I would argue is worth it. The double shock of a recession plus 9/11 sent the economy into a recession. The Clinton surpluses would have been gone simply because of those two items. In other words, the tax cut from Bush was less than the deficit.
On the other hand, liberals and independents who are opposed to the war in Iraq, would argue in clear terms that the war is not worth the borrowing. That is a very fair argument.
One of your concerns is if the economy can handle debt that is as large as GDP? I think it can because it has before after WWII. But the other question is, what are the benefits of borrowing for SS? Moving from ideology to practicalities, it all seems to depend. It looks like a shell game where younger workers are allowed to invest a portion of their payroll taxes. In exchange the US government is going to borrow money to help pay for actually my benefits. (I am 49).
In essense the borrowing goes to accounts of younger workers somehow. Well, what will they do with those dollars? They will invest them into either debt securities (bonds) or stocks.
In a nutshell (hope I am not oversimplifying), is it wise for the country to borrow 2 trillion dollars in US Treasuries over time to allow younger workers to invest these dollars for their own retirement?
There are may ramifications. For instance a $10,000 thirty year bond at 4.5% is worth $2370.00. (Stay with me here), If they invest it and earn 8%, with a conservative mix of stocks and bonds, that $2313 becomes $26867.00, in wealth. This is wealth for free enterprise. So in concept (understanding the devil is in the details) the wealth of that taxpayer for those dollars invested in closer to three times the value. If you forget the three times, and stick with the simpler arguement of more money for retirement and more control, that is the point of the borrowing.
The question for society is,,,
Is this a noble goal? And is it worth the risks you bring up??
Craig
Posted by: Craig Holmes at December 11, 2004 06:47 PMCraig,
That sounds plausible.
However, the wild card is Congress.
They are politicians that like to SPEND tax dollars, regardless of the consequences.
Fiscal responsibility is my concern.
I’m very skeptical where POLITICIANs are concerned.
I’m not sure this was as large a problem in 1945.
POLITICIANS (a dirty word to me; sort of like lawyers), are in control, and
their uncontrollable greed is worrisome.
Also, what if we have a large war like
(respectively) WW II ?
The uncontrollable spending is risking our security and ability to
handle something like WW II.
I really fear that Americans are too sheltered
and don’t realize how
compromised their security is becoming due to the greed of politicians and lawyers.
Daniel continued,,,,
It looks to me that Bush believes that the arbitrage created by borrowing from the US treasury market and investing in another is wise. He may in fact be correct. As long as it is done over time, the increased $$ put into business will spir growth and create jobs.
I think old paradigms of thinking in budget balance may or may not imply. This in not money borrowed and spent (like on the Iraq war), but borrowed and invested. Negatives of borrowing need to be weighed with positives of increased equity holdings. It is a bold and revolutionary idea, and one that has not ever been tried before that I know if in our history. It shows a great deal of imagination.
I like that Bush is thinking creatively and outside the box.
Craig
Posted by: Craig Holmes at December 11, 2004 07:27 PM
Daniel:
Another issue is over all borrowing. I am actually more concerned with consumer debt, state and local debt etc, in terms of the future of our coutry. If you do the same analysis you have just done, with TOTAL debt in the country, it is absolutely staggering.
This proposal of Bush’s in isolation, meaning if federal debt were the only concern would be one thing. For instance, in California where low interest rates have created a wealth bubble that homeowners have tapped with home equity loans to purchase consumer goods, could be an absolute disaster if the economy goes south, and home prices plummet. Bankrupsy rates would go through the sky, killing bank profits and lead to a negative spiral I don’t want to think about.
Federal debt in isolation, I may not share your concern, but debt as a whole is something that is staggering.
Craig
Posted by: Craig Holmes at December 11, 2004 07:33 PMHmmmm. I’m not sure.
Yes, I’ve been hearing that personal debt in this
country is at all time highs also.
Perhaps, government is not setting a good example.
I personally hate being in debt, and thus, have
had none for many years. But, back before I paid
off my mortgage early (10 years), I hated seeing
90% of each payment going to finance charges only. To me, spending more on interest for
anything (than the original price) is questionable.
And, being so deep into debt can be a security
risk and limit options in time of crisis.
I’d like to see the Debt / GDP ratio
to get back down to the 30% levels BEFORE
Reagan took office.
What bothers me most about this administration is the good ole boy network. This is Texas politics as usual, except on a larger scale. What is not truly being reported in the press is where the money goes.
Ocassionally, a story about Haliburton is kicked around a little, but fearful of liability issues, and a little pirateering by Media Moguls of their own (especially during election season) leads to quiescence. No one talks about the genesis of policy based on profiteering.
Of course Washington is much better at this game than them local good ole boys, and here were talking aabout serious money. GW isn’t the only good ole boy. Bill Clinton is a good ole boy, too. America is in the hands of the profiteers, Middle East Oil Policy, Corporate welfare, and Privatization of public services is the real game here,not geopolitics, peace, abortion or family values.
A local story caught my attention this morning: Commissioner hires himself
This is just more blatant here. Slick Willie was a pro at it. GW and “Kenny-boy” are just a little less embarrassed by their pirateering.
Who will profit from this SS game? I don’t know yet. The trough is being slopped and GW & company know which pigs are in front. Why don’t the political pundits know or talk about it? Because this is a game of diversion. If you shake a shiny object in front of Joe six-pack, he’ll never see who’s robbing him.
My one hope is the bloggers will begin to “out” these issues.
The Economist
and
The Center for Public Integrity are good places to start, but these issues need to go mainstream.
By the way the private savings plan is an elimination of Social Security not a fix.
From a Washington post article:
Radical privatization would end Social Security as we know it. Social Security is not simply an investment vehicle or a pension program – and never has been.
Today, Social Security provides benefits to about 43 million Americans, not only to retired workers but also to the spouses and dependents of workers who die prematurely and to disabled workers and their dependents.
Social Security looks to many people like a simple (if massive) retirement savings account. After all, you generally contribute through payroll deductions, then get money back after you retire. But Social Security in fact is a complex social program.
By design, Social Security involves massive subsidies from the next generation of retirees to this one, from single workers to married couples, from two-earner couples to one-earner couples, from high-income earners to low, from the able-bodied to the disabled, and from those who die early to those who die late.
A mandated savings and investment plan can’t do what Social Security does today. Rather than redistributing benefits in intentional and socially conscious ways, a personal-investment plan could raise or lower people’s benefits based on such factors as investment ability, luck and timing.
It seems we have forgotten what Social Security was about as the memory of the Depression fades. The business cycle still exists The dot com bust was a minor glitch. Wall Street doesn’t like to bring up the lack of interest of private companies in protecting average Human Beings from the vultures of capitalism.
Posted by: Greg at December 12, 2004 12:53 PMGreg:
A mandated savings and investment plan can’t do what Social Security does today. Rather than redistributing benefits in intentional and socially conscious ways, a personal-investment plan could raise or lower people’s benefits based on such factors as investment ability, luck and timing.
For younger workers I don’t see how it would lower benefits. Even the worst case senerios on a long term basis would increase benefits for retirement, since virtually every long term return is better than what SS is earning on their investment right now.
There is also the “morality” of taking money from working families and earning such a poor return on reserves. Families can do far better for themselves!!
I noticed that Bush’s plan is to only for a portion of withholding tax.
Craig
Posted by: Craig Holmes at December 12, 2004 01:23 PMCraig, there are a couple scenarios, you are overlooking. 1) Corporation managing your funds bankrupts. Now if Congress will offer an FDIC type guarantee of investments against such a peril, that would be a step in the right direction.
2) Joe starts socking away at the age of 26 after graduating from college. By the time he is 40, he has paid off his college debts, bought a home, probably married and divorced and remarried, with child support payments to the offsrping of the 1st marriage, and now at 40 has a nice nestegg under the PSA of about $100,000.00. The real earning power of the PSA takes place over the next 20 to 40 years, when he can aggressively invest toward a goal of 1.5 million.
But, his real aggressive savings bog down by the age of 48 as his kids go into college themselves and the cost is 3 times what it is today. OK, he revises back to 1 million by age 70.
At 60 however, his advisors tell him to reduce his risk, so he moves half of his investment into bonds and muni’s. Now he revises back to 800 thousand. Then at age 67 he decides he is going to retire. So, he prepares by selling his big house for a smaller one, and gets a fishing boat and cabin by the lake. Then 4 months before retirement, the economy goes south and he loses 40% of equity investments. Now he is down to 500,000. No problem. A half mil. should last a long time.
Of course, 3 years after retirement he begins racking up some medical bills for hip replacement and by pass surgery. After insurance coverage, it sets him back another $150,000. Now he is 71 and down to $300,000 and he is expected to live another 20 years.
Given that he is taxed on his annuity from the PSA for living expenses, etc. those 20 years left divided into $300,000 breaks out to $15,000 per year. A person can’t live a middle class life on $15,000 a year today, let alone 20 or 40 years from now.
This is a very realistic scenario for a working person making a middle class income. The PSA’s is not guaranteed. Social Security is for as long as you live. Therefore, another person following the same life with the same income who elected to remain in the Social Security system as it exists today, would live better than during his last 20 years than the schmuck to elected the PSA.
This is complicated to explain. But, damn, the public had better follow its complications and details very, very, closely, because abandoning the current system, as I just demonstrated, could easily spell poverty in retirement for 10’s of millions of Americans who saved and worked all their lives.
Posted by: David R. Remer at December 12, 2004 02:41 PMDavid:
1. Investments shouldn’t be allowed to be placed where if the company goes bankrupt they loose their investments. Mutual Funds could be fine for this.
2. All of the problems you suggest can be eliminated with reasonable regulation. Since these are dollars that would have been invested in the SS system, all one needs to do to improve the persons life is improve on Government bonds as an option.
3. You are talking about my children’s Social Security. What would your alternative be??
The Democratic alternative must be one of the following. A. Allow the system to go broke so my kids get nothing. B. Reduce their benefits so they get far less than my generation. C. Radially increase taxes on them.
So what solution does the Democratic party have???
Craig
Craig, some of this is real simple. If, as you and Bush and so many others tout, such Personal Savings Accounts, will return a compounding growth that far exceeds what our current Soc. Sec. sytem will provide, then the solution to selling it is for the Federal Government to guarantee PSA’s for the minimum return on investment which the current Soc. Sys. would provide, with cost of living increases. But, this is not what is being touted so far.
Whatever replaces the current Soc. Sec. system MUST guarantee the Security that the current Soc. Sec. system provides, a failsafe against having to die in a cardboard box in an alley without medical care after having worked most or all of one’s life and saved for retirement.
Second, the replacement system must provide for disability that might occur during one’s working life as the current system does. This is something else not being discussed in alternative plans.
Now, I believe scrapping the current system is the wrong way to go, because the current system works and can be adjusted to work in perpetuity.
Adjustments needed. The biggest is a balanced budget ammendment with appropriate exceptions for war and economic downturns. If the President and Congress are not forced to balance the budget, they will spend SS surpluses and face huge national debt as a barrier to borrowing through periods when SS must operate in deficit until surpluses are generated again.
Second, SS benefits must be means tested.
Third, SS revenues should be invested into a mix of compounding interest and earnings vehicles in the private sector by the US government via privately contracted and diverse management services. This would give the U.S. government legitimacy in scrutinizing the practices of any bidding management companies wanting to manage SS revenues. This would also relieve the consumer of having to pay individual management and advisory fees, achieve economy of scale for the management of the revenues, create during good times greater returns on SS revenues, and still be guaranteed and underwritten by the US government. Lastly, this would remove SS revenues from the general federal revenues which motivate politicians to be so creative at pork spending.
Posted by: David R. Remer at December 13, 2004 04:25 AMHow long is long term? How much did the stock market gain between 1929 and 1955? It didn’t it lost value.
People born today don’t recall the Depression. We haven’t conquered the business cycle. America cannot override world economic factors.
Soceial Security IS NOT a retirement plan that is just BIGGER. It is a social contract.
What will happen to the American and World Economic situation if there is a MAJOR oil shortage due to say WAR?
There is the belief that somehow we can now make up for the theft of the Social Security funds. We can’t. However, since food and shelter are not simply monetary script without intrinsic value a Social Contract can be kept by writing new revalued script in an economic crisis. This isn’t about retirement in Boca. It’s about survival in a capitalistic system when capitalism in it’s “efficiency” creates a starving population.
Playing Wall Street roulette will not secure this contract. This is a deception folks. A Give away to investment banks for slick talk and freeing up more spending for Politcians to fill their pork barrels and curry short term favor. It’s a gamble to wiggle out of the situation that government give aways to corporate greed now lead to impotent government, less power and exposing the capitalistic shell game. It’s a play for money that risks Joe six packs survival in a crisis.
Sadly, it may take this kind of crisis to end the hegemony of the Democratic and Republican party swindles.
Posted by: Greg at December 13, 2004 05:27 AMGreg:
How long is long term? How much did the stock market gain between 1929 and 1955? It didn’t it lost value.
About 5.5% if a person dollar cost averaged into the market. The Dow Industrial Average doesn’t include dividends. So the total return would have been alot greater. I don’t have the numbers, but probably in excess of 8%.
David:
I agree that some choices must include guaruntees for those who wish them. I also believe there MUST be some options for those who do not wish the restrictions you pose.
I do not agree with means testing as that turns Social Security into welfare.
Is that the Democratic reponse? To turn Social Security into another entitlement welfare program? That was never what was intended when SS was created.
Craig
It’s all quite hysterical, speculative, but entertaining nonetheless. Some more of the rumors I’ve overheard to pay for this SS reform include removing deductions for state and local tax from your federal tax, and of course, the looming national sales tax idea. (There have been a few articles on CNN, however I have the articles, but not the links at the moment — doesn’t matter much anyhow, it’s all speculative)
I’m no economist, so I guess I have to put my faith in those who are. Obviously in the end, we in the middle and lower class are going to lose. That’s just the way this country operates. I believe it will continue to do so until viable third parties arise in our government.
Personally, I hope Shrub and his goons get free reign to do what they want, because that may serve to wake up Americans and stop this two party nonsense.
Maybe they can carve his likeness into Mt. Rushmore to boost egg sales in SD. :)
Those who keep asking why every “Democrat” has to bash Bush just for the sake of bashing Bush should really take a closer look… this administration is so undeniably incompetent and corrupt that 50 some million Americans across the entire political spectrum can’t stand him. It’s not a party affiliation issue, it’s a matter of whether you bought the propaganda from the Bush camp or not.
People have good reason to not trust him, and especially not to trust him and his administration when they propose a change to our country as substancial as this. Personally, I’d rather see the issue tabled until we can get another President in office, one who is fluent in at least one language.
Craig, it was designed as a safety net to prevent our elderly from dying in cardboard boxes in back alleys after retirement.
If that goal can only be accomplished with an entitlement program, so be it. Privatized savings is not the answer. The government’s own statistics on savings in America megaphones that message. Means testing social security benefits WILL reduce the cost outlays of Soc. Sec. and preserve its viability.
Posted by: David R. Remer at December 13, 2004 12:55 PMCraig, I didn’t have access to anything but graphs for my conclusions about the Dow, but I suspect the dates you choose may cause great variation in that number. Many dividends were suspended during that period. The chart I used was not that readable, but even an 8% gain over a 26 year span is not great.
I purposefully chose a long span with horrid returns to emphazize my point that markets don’t guarantee.
I disagree that it wasn’t a welfare program, it was. It was sold in another way to encourage contribution and is really intended as a sort of “workfare”, but in reality was socially humanitarian redistribution of wealth.
Henry Ford’s business plan was scheme to benefit both himself and his workers, but later CEO’s plundered Ford’s pension plans like so many other companies in order to stay competitive (i.e. increase stockholder value) That is why they seek offshore plants, to avoid their pension responsibilities. The only problem is, it’s a short term solution, because the workers become unable to purchase the product. Unfortunately (sarcasm here) people live well beyond their productive years and become medically expensive as they age.
These phony pension promises and the three card monty shuffling economics simply aren’t honest at their root.
Posted by: Greg at December 13, 2004 01:19 PMBy the way, Japan has real “social security”, yet, they are very competitive. It’s a question of valuing people, not economic ball juggling.
Posted by: Greg at December 13, 2004 01:25 PMGreg:
The numbers I used assumed a person but an equal amount of money in by the month for the time period you suggested. The reason for the return is that the person would have invested very little money by the time 1932 had arrived, and purchased shares through the thirties when the market was low. Even though the dow did not rise on average anyware near 5 % a investor who invested as they would have in SS would have.
Your point is better made when a person retires on a low. If they began investing in 1912 and retired in 1932 for instance. Unfortunately I don’t have those statitics available.
Even if a person retired in 2002 I believe they would of had many times more the retirement under the private accounts than SS because the 80’s and 90’s were so strong.
This debate may come down to whether SS is viewed as a welfare program or a retirement system.
Craig
Posted by: Craig Holmes at December 13, 2004 02:35 PMI know that no one can answer this question, but it drives me crazy trying to think of an answer.
“Why am I forced to give my hard earned money to the govt to plan for my retirement?”
“Can’t I choose what type of life I want myself?”
Can’t say I can, but I’m willing to try:
“Why am I forced to give my hard earned money to the govt to plan for my retirement?”
There is strength in numbers. Isn’t that why insurance (to some degree) and SS have worked at all? The less people that participate, the weaker the system gets. Imagine starting an insurance company with only the finances at your disposal now, with only 100 customers, how long could you last? (maybe not the best example, but trying to make a simple point).
Personally, I’m no Bill Gates or Rockefeller, so I really don’t want to “go it alone”. Without being born into a dynasty family and without having good ideas and the right timing to do what Gates did, I doubt I’ll ever have everything I need for retirement. If that makes me a burden to the rest of you, so be it. I’m laid back enough that I’m prepared to either burden society collecting SS payments in my home, or looking for handouts on the street. Either way, I’ll get fed.
“Can’t I choose what type of life I want myself?”
Does anyone really think we’ll see a world in our lifetimes where this is possible? There’s a lot of card dealing, I guess that’s just life. It’s very far from fair. Isn’t supporting a government we all benefit from a small sacrifice compared to the sacrifices people have made over the course of human history? We still get an awful lot of freedoms for a cheap price, and I’m not rushing to the front of the line to complain.
Thanks Taylor
Alot of that makes sense. I just have to much pride to rely on govt and others to take care of me I guess.
I’m no Gates either. I make about 24 a year with a family of four. I just think it should be everybody’s choice to participate or not.
I don’t pay income taxes and as soon as I find a way not to pay SS, I won’t.
I just think its very unfair to be forced to contribute to something that is not worth it.
Thanks for your input.
kctim asked: “Why am I forced to give my hard earned money to the govt to plan for my retirement?”
“Can’t I choose what type of life I want myself?”
The answer to this is simple. Without Soc. Sec., we would today, be paying huge amounts in other taxes to clean up the dead bodies from the alleys, roadsides, public doorways, etc. of all the elderly who could not afford housing or medical care despite the fact that lived poor while working their whole lives. It is an insurance policy against our becoming knee deep in dead, dying, and suffering homeless old people.
And should you reach 72, and get ripped off for all of your worth, or lose you income generating capability due to an accident making you a quadraplegic, or schizophrenic, or whatever other debilitating condition that prevents you from working, Soc. Sec. will be there to insure you too don’t die alone in a cardboard box in some alley or dumpster.
See how easy that was?
Posted by: David R. Remer at December 13, 2004 06:26 PMkctim, there are also 35 to 42 million Americans living under the poverty line, and that number would vastly increase without Social Security being there. If you think you could eek out a living at or below poverty at a minimum wage job and save for your own retirement, you live in a fantasy world different from mine.
Posted by: David R. Remer at December 13, 2004 06:29 PMI thought this was the Independent blog! All of the headlines look like they belong over on the Democarts and Liberals side - Not the Independent!
Bush - Lying!!! Now there is a surprise! The President of the United states Lying!
But didn’t Bill Clinton lie when he thumped the podium and said “I never had sex with that woman….”
Imagine where we would be if Hillary’s Healthcare passed. How would we pay for that? We can’t even pay for the programs we have without massive tax increases!
Now, we could raise taxes and pay for everything, but where would the economy be? Raising taxes depresses economic growth. Bush has enacted every stimulus he can - Lower taxes, Weak dollar, deficit spending, lower interest rates, and still there is weak job growth, and little if no inflation!
I see little value to calling presidents liars. What we need is someone to address the issues, and they are difficult issues.
This piece should go over on the liberal side.
Posted by: Jay at December 13, 2004 08:02 PMI thought this was the Independent blog! All of the headlines look like they belong over on the Democarts and Liberals side - Not the Independent!
Bush - Lying!!! Now there is a surprise! The President of the United states Lying!
But didn’t Bill Clinton lie when he thumped the podium and said “I never had sex with that woman….”
Imagine where we would be if Hillary’s Healthcare passed. How would we pay for that? We can’t even pay for the programs we have without massive tax increases!
Now, we could raise taxes and pay for everything, but where would the economy be? Raising taxes depresses economic growth. Bush has enacted every stimulus he can - Lower taxes, Weak dollar, deficit spending, lower interest rates, and still there is weak job growth, and little if no inflation!
I see little value to calling presidents liars. What we need is someone to address the issues, and they are difficult issues.
This piece should go over on the liberal side.
Posted by: Jay at December 13, 2004 08:06 PMRaising taxes depresses economic growth.
That’s a gross oversimplification, and not even true. Clinton enacted a small tax increase on top of the massive tax increases enacted by Reagan and Bush Sr. that signalled his seriousness about reducing the deficit.
From former Treasury Secretary Robert Rubin’s book, “In an Uncertain World”.
“The decision the President made in this process marked a dramatic change in fiscal policy. The opponents of that change - especially supply-side advocates who vehemently objected to including tax increases in our deficit reduction program - predicted that our program would lead to increased unemployment, higher deficits, and economic stagnation, recession, or worse.Republican Representative Dick Armey of Texas, chairman of the House Republican Conference, said the plan would be “a disaster for the performance of the economy” and warned that “no deficit reduction, no good can come of it.” His colleague from Texas, Republican Senator Phil Gramm, called it “a one way ticket to a recession.”
Instead, the country had the longest period of growth in it’s history, massive new private-sector job creation, low inflation, higher incomes across all income groups, increased investment and productivity growth, and lower deficits, eventually followed by surpluses.
That has been a great and enduring frustration to supply-side advocates, who first predicted that our policies would cause great economic injury and then, when the opposite happened, argued that sound fiscal policy had nothing to do with economic conditions they had predicted would not occur.”
It’s a really accessible read and I highly recommend it.
BTW, did you see where our captains of industry believe Bush’s record deficit spending one of their biggest concerns?
David
I understand what you have posted and through my time on here, I have become alittle more open minded about SS. I can see where there is a need for it in a way.
Even though I believe your scenarios of old dead people in alleys is a drastic scare tactic that equates to saying all lefties are commies or all righties are racists, I still see a reason for SS right now.
My question is just, “why can’t it be MY choice?”
You’d think Congress could control pork-barrel
and wasteful spending and simply pay back a
portion of S.S. (e.g. $100 billion per year)
to build up some surplus. Thus S.S. could
easily be fixed (theoretically).
That’s what I wish they would do with S.S.
Just stop plundering the surpluses, and pay back
some of what’s already been plundered.
Sounds simple, but that is the one thing Congress is NOT able to do … control spending.
They are spend-a-holics that irresponsibly max out a credit card,
get another credit card, max that one out too, and so on …
When you factor Congress’ “uncontrollable spending habits and track-record”
into all estimates and projections, the result is (as history shows) very poor indeed.
Social Security sounds like a great idea in theory,
until you factor in Congress’ “uncontrollable spending habits and track-record”.
Transparency and Accountability is one important missing ingredient.
Like security cameras that discourage crime,
transparency is needed in Congress to discourage pork-barrel, waste, and corruption.
But, most Voters are not aware of what is going on.
The system has been perverted and over-complicated. Thus, voters are apathetic.
Thus, all things considered, Social Security will limp by for many years,
benefits will continue to be reduced, taxes will continue to be increased,
and S.S. will become an increasingly corrupt system and bad investment, all because
government could not resist the greedy urge
to plunder the surpluses that would be needed later.
Thus, putting theoretical possibilities aside,
and considering realistic possibilities only,
S.S. should be phased out. Perhaps that’s what
Bush has in mind, but it will be a disaster.
Wall Street will plunder those funds just like
they plundered investors from 1998 to 2001.
It you thought government was full of sharks, wait until crooked brokers
lay their hands on all of that money. For example, where were all the
financial brokers and analysts and CEOs when your funds were plummeting
in 1999 and 2000 and 1929 ?
They were all screaming “BUY , BUY , BUY”.
Investors lost $trillions of dollars and created much hardship.
And, government will do
little to punish the criminals that defraud investors, and
few will ever go to jail (such as those at Enron,
MCI, Tyco, Qwest, Lucent, Merck, Adelphia, etc.).
As usual, the lazy, complacent, apathetic tax-payers will get screwed.
And perhaps they deserve it since they’re too lazy to demand that their
government stop screwing them.
