SOCIAL SECURITY TRUSTEES REPORT
by Dale Coberly
SOCIAL SECURITY TRUSTEES REPORT
An Overview of the Overview
The 2016 Trustees Report didn’t have much new to say, so the usual commentators were free to say what they have always said, which is mostly wrong.
A careful reading of just the Overview (p 2 to 25 of the Report) will help us correct the dangerous misunderstandings that have been created by commenters who either don’t understand it themselves or just hope that you won’t understand what the Report actually says.
Let us begin with the Trustees own conclusion (p 25):
“With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations.”
“Can continue… to protect… future generations.” But there has been no informed discussion. no creative thinking, and no timely legislation. Instead, the politicians and the press keep repeating hysterical distortions to lead people to believe that Social Security faces a huge debt, a “looming crisis,” that, so far from “protecting future generations” will impose “crushing burdens on the young.”
The Trustees indeed report [page 5] an “actuarial deficit” of 11 trillion dollars, a number the “non partisan experts” use to scare people who aren’t used to thinking with numbers. Thinking with numbers leads easily to an approximation: Eleven trillion dollars divided by 100 million workers is about 110 thousand dollars per worker. Dividing that by 75 years yields about 1500 dollars per year per worker. And to put that into terms workers are familiar with, that would be about twenty-eight dollars per week for an average worker (who is making about a thousand dollars per week).
Is this a huge burden? The $ 28 does not go into a government black hole: it comes back to the worker when he will need it most, with enough effective interest (automatically created by pay as you go financing in a growing economy) to provide for his basic needs when he is too old to work. This is a reasonable cost for the benefit.
The Trustees don’t leave the reader having to trust my approximation. They state quite clearly [page 5] that the $ 11 Trillion Dollar actuarial deficit would require an “immediate and permanent” tax increase of 2.66 per cent. That 2.66% would be 27 dollars per week for a worker making one thousand dollars per week.
Moreover, the average worker would only see about half of that cost. His employer pays the other half. The worker would see fourteen less dollars per week out of his paycheck, leaving him 986 dollars per week to live on today while putting away that $14 (plus the employer’s $ 14) to live on when he gets too old to work. A low wage worker making only 25k per year (half of that thousand dollars a week) would only see about seven dollars less in his paycheck each week.
But it’s even better than that. The Trustees point out (page 25):
“The Trustees recommend that lawmakers address the projected trust fund shortfalls …in a timely way in order to phase in necessary changes gradually …Implementing …changes sooner rather than later would allow more generations to share in the needed revenue increases … and could preserve more trust fund reserves to help finance future benefits.”
In fact, the needed revenue increase could be phased in at one tenth of one percent per year for each the worker and the employer. This would amount to about one dollar per week each year for a worker making one thousand dollars per week while the worker’s wages are expected to increase by over ten dollars per week each year. This means that after twenty years, while the tax has increased twenty dollars, the worker will have an extra two hundred dollars in his pocket AFTER paying the tax. Plus, of course, he will still have that twenty dollars (per week) in a savings account with good interest and great insurance to live on after he can no longer work.
Readers with a sharp eye may have noticed that the Trustees project an increase in the combined tax of 2.66%, but I ended up talking about increasing the workers tax 2% over twenty years and the employers share another 2% over that, for a total of about a 4% increase. There’s a reason for this: The Trustees 2.66% “only” closes the actuarial gap for seventy five years.
The Trustees warn (p 25):
“If lawmakers design … solutions only to eliminate the overall actuarial deficit without …consideration of year by year patterns, then a substantial financial imbalance could …remain at the end of the period, and the long range sustainability of program financing …could still be in doubt.”
Is a possible 1.3% increase in the needed tax 75 years from now a “substantial financial imbalance”? Does it make sense to worry about “doubts” about something 75 years in the future? Not if it means we are going to panic today and start cutting benefits or privatizing Social Security or turning it into a welfare scheme. But the politicians and the press use doubts about a possible one percent increase 75 years in the future as an excuse to scream about a “200 Trillion Dollar debt over the infinite horizon.”
It turns out that the “substantial financial imbalance,” as well as the “infinite horizon,” can be paid for by simply raising the tax that one tenth of one percent for twenty years… reaching a total increase… 2% for the worker and 2% for the employer… of 4%. This will provide sustainable solvency at the end of the 75 year actuarial window because the tax will then equal the expected costs [page 4]. And that same 4% will continue to pay all foreseeable costs over the infinite horizon. The Trustees say so (p 19):
“Through the infinite horizon, the unfunded obligation, or shortfall, is equivalent to 4.0 percent of future taxable payroll.”
It’s worth noting here that real wages are expected to be 30% higher by the time that 4% tax increase is reached. By the end of the seventy five year actuarial window, real wages are expected to be 250% (two and a half times as much) of what they are today… with the tax still only 4% higher than it is today. This would mean in today’s terms that your thousand dollar per week income today would be about two thousand five hundred (real) dollars per week 75 years from now, while your payroll tax would be about a hundred dollars more per week than it would have been without the 4% increase. We have to wonder how those “young” are going to get by with only $2400 per week to live on, while being forced to save that hundred dollars extra in case they live longer than than their grandparents did.
And over the infinite horizon, wages will still be growing… infinitely?… but the tax will remain at 4% higher than it is today.
Another way to look at this is that Social Security benefits today cost about 5% of GDP. That is we use five percent of our national income to pay for our basic needs when we get too old to work..a retirement that may last 20 years. This comes from money the workers paid themselves plus the interest it earned by increases in the economy that came from their work. Because we think we are going to be living longer — up to 24 years after we can no longer work, that cost is expected to increase to about 6% of GDP. Think of it! Six percent of GDP just to be sure that people who are too old to work will have a place to live and enough to eat … and they paid for it themselves. Clearly a crushing burden on the young. Oh, wait a minute, “the young” will be “the old” by then.
I have only talked about increasing the worker’s own savings in Social Security (this is called the payroll tax or FICA deduction). The Trustees say that instead of raising the tax 2.66% “immediately and permanently” to cover the next 75 years, benefits could be lowered by 21%.
I’ll leave it to your intelligence to decide whether you’d rather take the tax raise and get by on 4275 dollars per month instead of 4333 dollars per month while you are young, or have your pension cut from 1732 dollars a month to 1368 dollars a month when you are old and can’t work.
It should be pointed out that none of these ways is “more expensive” than another. The ultimate cost will be the same: the cost is the cost of basic expenses when you are old and can’t work. The difference is in when those costs come.
I think it’s a lot less painful to pay a dollar a week more each year over twenty years than to pay an extra 14 dollars per week all at once right now, and certainly a lot less painful than paying nothing now and trying to find a way to pay for it after you are too old to work.
This should give you enough to think about so you can read the Overview and the commentators without being misled by unduly pessimistic language, not to say hysterical distortions.
The Greenspan Commission tried to provide a 75 year solution. It will come out a bit short, but its bigger problem is that so many people believe that it was a longer term solution.
As long as people are living longer without being able to work longer, they are going to need to put a larger percentage of their earnings toward retirement. As Dale says, the growing economy still leaves them with more to spend as they go along.
There are many reasons why most of what people say about SS is wrong. It was not designed to be simple, it was designed to work. Nonetheless, there are people who will provide simple descriptions for those who don’t want to bother to really understand it. Some on the right simplify down to “bad”. Some of the left to “don’t worry about it”. I think if you understand it, you can see why increasing the payroll tax to keep it (simply) “by workers for workers” is a good idea.
Good post, Dale. When the trolls come along and show they don’t bother to read and understand, just let them read it again.
Coberly – The $11T is the Net Present Value (NPV) of the future shortfalls over 75 years. The NPV is the # that would have to be paid to SS TODAY. The $11T would thereafter earn interest at an average rate of 5.5% for the next 75 years.
You are wrong to suggest that the NPV can be paid off in equal installments over the next 75 years. That is just not how the NPV calculation works.
Krasting
i had this out with Kotlikoff years ago. He finally saw the light. Maybe you ought to call him and ask him to explain it to you.
Unless you have 11 Trillion to put in the bank today, you are going to have to find a way to put that 11 Trillion in Present Value into your future grocery budget one day at a time. The Trustees tell you how. Not Dale, but the Trustees tell you. (Hint, raise the payroll tax 2.66%)
Dale showed you how to do it even easier.
As Arne said, read the post. Get help.
(here’s another hint for you: taxable payroll this year is almost 7 Trillion Dollars. If nothing else changed the Present Value of taxable payroll every year in the future would be 7 Trillion dollars. Hmmm… let’s see 7 times 75 … that would be a total of 525 Trillion dollars in Present Value. Can you find 11 Trillion in Present Value in a pile of 525 Trillion in Present Value? Here’s another hint… The 11 Trillion in present value is 2.1% of 525 Trillion in Present Value.
It’s a damn shame that they teach people to prate about Present value, and even “do the calculation” without knowing what they are talking about.
Pretty good summary.
But we should view critically the statement that a typical American worker earns $1000 weekly.
1. I believe this is for a full-time male worker at 52k.
2. Labor dept says median household income is just 53k.
So, something’s not right.
Female workers make much less
Ever growing number of part time workers earn less, and earn less HOURLY.
I think median HOURLY earnings are about $14, giving a median worker wage maybe 28,000. Half earn less.
A whole different picture.
Doesn’t affect social securit calculations.
Actually, it supports the idea most workers can’t “save” for retirement.
Cripes:
Welcome to AB. First comments always go to moderation to minimize spam. You are free to post at will now.
Dale, nice work. Maybe the best summation you have ever done.
“[Real] wages are expected to be 30% higher by the time that 4% tax increase is reached. By the end of the seventy five year actuarial window, real wages are expected to be 250% (two and a half times as much) of what they are today.”
I have serious doubts about that assumption.
http://www.pewresearch.org/fact-tank/2014/10/09/for-most-workers-real-wages-have-barely-budged-for-decades/
Warren just stop. ‘Stagnant’ and ‘barely budged’ does not mean ‘absolutely flat over a 75 year window. The following table shows historical and projected numbers for Real Wage since 1960 using both Five Year Periods and Business Cycles with annual numbers since 2006.
https://www.ssa.gov/OACT/TR/2016/V_B_econ.html#292722
The only extended spans where you see actual negative values were during the stagflation of the 1970s. And while there were four years of actual negative numbers since 2006, with 2008 being the worst of all ‘Thanks President Bush!!!’, this didn’t result in actual negative numbers for either the respective Five Year Periods or the Business cycles.
Dale’s numbers draw on the Intermediate Cost projection which has the ultimate numbers for Real Wage sinking below 1.3% and staying there for ever. Which is to say less than half of the 1995-2000 rate. Now I would be pleased to have you give a serious exposition, maybe with some economic projections attached, as to why an ultimate Real Wage number of 1.3% would give you “serious doubts”. But just linking to an impressionistic set of talking points derived from the text of that Pew Study don’t meet the test.
Try taking 1.3% and compounding it over 75 years. These are not outrageous projections, instead they are in anything quite conservative and assume no positive policy approaches that would target Real Wage. (Hint: $15/hr minimum wage).
Links are not arguments.
Note that actual Real Wage Differential in 2014 was 1.94% and then 3.17% in 2015. Intermediate Cost projects this to crash by half to 1.68% by 2020 due to a rapid increase in CPI to 2.76% in 2017 and ultimate 2.6% by 2019.
Lets just say that current rates on the 10 year don’t give a lot of support to inflation exceeding the Feds target by that much that soon. As it relates to solvency over the long run Intermediate Cost has always been biased to the pessimistic side. As such you deriding Dale for using them shows a lack of understanding of what the numbers show.
Cripes and Warren
I am using the same numbers that project the 11 trillion dollar deficit, and the 2.33% tax increase that would resolve the deficit.
if you don’t believe my numbers, then you don’t believe the numbers that are being used to say “looming crisis” “crushing burden.”
for once, this really is simple logic. mathematical logic.
Cripes
i don’t know if the problem lies in the difference between median and mean. SSA uses mean because you can multiply the mean by the number of workers and get the total payroll which is what is taxed to pay the benefits.
if the median is much lower, pick that number and do the percents from my essay or from the Report and get your own answers for how much a one tenth of one percent tax increase will cost that worker.
that much less than “not much.” the nice thing for the less than “mean” worker is that his benefits are calculated at a higher rate than those of the “mean” and “higher than mean” workers.
that’s a higher “rate,” which is not the same as “more money.”
cripes
as for the poorer worker not being able to save for retirement. you are right. there is always something you need more today than “retirement 30 or 40 years from now.” which is why poor workers don’t save.
but SS takes 6% of their money (mean old SS) and saves it for them. they can get by on 6% less. (i know this from experience.) and when they reach retirement age, instead of having to find a dumpster to live in and eat out of, they get a pension on the order of half or even more of what their working wage was. not rich, but again, enough to get by on.
even if the poor had the “moral fiber” to save, they really could not afford to take the risks of the stock market, and inflation would wipe out half or more of what they could save.
all of which is why Social Security is necessary.
Warren
i’m not so sure about the Pew report. they seem to be looking only at lower tier workers…. something worth looking at to be sure. But SS looks at all incomes below the cap (including the below the cap part of incomes of people who make over the cap). if people above the median have been experiencing higher wage growth than people below the media. the Trustees would still report the “average” wage growth which would be higher than that of the low earners (note low rate of growth is a different matter than low income, though of course they are related).
thing is, you have to be careful that what you are reading is telling you what you think it is. as I mentioned to Cripes above, it’s the totalincome (below the cap) that determines the pot of money that benefits are taken out of.
“[You] have to be careful that what you are reading is telling you what you think it is. [As] I mentioned to Cripes above, it’s the totalincome (below the cap) that determines the pot of money that benefits are taken out of.”
While that is true, that is NOT what you were talking about. Allow me to quote your next sentence:
“This would mean in today’s terms that your thousand dollar per week income today would be about two thousand five hundred (real) dollars per week 75 years from now.”
Warren and Cripes
a thousand dollars a week today is “average” (mean)wage. i think Cripes was talking about people significantly below the “average’ (mean) wage.
if that’s what you (Warren) were talking about also, and what you mean is that some people will not be making two and a half times as much 75 years from now, you could well be right. for one thing they will be dead.
in any case the problem if there is one, is not a problem of Social Security. Those people making very low wages can STILL get by on 2% less than they are making today (I know this from experience). AND they will get higher benefits as a percent of their working wage than people who make more than they do.
I agree that wages for “the least among us” should be higher. i take the attitude that the cleaning lady saves the lawyer an hour of time for every hour she works for him. i don’t see anything wrong with paying her what the lawyer gets for his time.
but while we are working on solving that problem, i can also tell you that those poor workers are going to need Social Security more than ever. See my note above on why the poor can’t save.
It’s one thing to see a possible problem. It’s another to say “therefore Social Security is a bad deal.”
And you have an issue with that? Using what math?
Retirees in the future will be able to afford a better basket of goods than retirees today. Just as today’s retirees have a better basket of goods than retirees forty years ago. Now you can dismiss a certain amount of that basket as fluff, I mean does grandpa really NEED a car and computer and big screen TV? Well in truth maybe nobody needs houses which on average now have more bathrooms than bedrooms, where every kid has their own bedroom and every household member over the age of 16 has their own car. Those were certainly not the standards in the 60’s when I was growing up. In an America that was considered incredibly prosperous in historical terms. I mean back then even Wally and the Beaver shared a bedroom on Leave it to Beaver.
But you are flailing by challenging the basic math here. The numbers do show what Dale Coberly says they show. Unless you can show that they don’t. But apparently you believe they just fall of their own weight. As in your “Allow me—”
Allow you to what? Make truth claims based on NOTHING but some quote marks? Man if you can’t say it with numbers, preferably numbers that show that you have actually done some first order analysis rather than relying on half understood repetition of others, then follow my original advice on this thread:
“Warren just stop”. You are not doing yourself any favors.
Perhaps people don’t quite get the concept of ‘Real Wage’. Real Wage is the premium of wage increases over consumer inflation. Assuming the measure of consumer inflation accurately reflects people’s preferred lifestyle consumption choices then ANY increase in real wage means a better basket of goods. That is simple arithmetic.
There seems to me no question that people of today, including retirees, consume a bigger and better basket of goods than those of 40 years ago. That is people live in bigger houses with more cars and better in home entertainment and can buy things like ‘out of season’ fruits and vegetables at relative prices unimaginable when I was a kid.
None of which excuses the increases in inequality due to progressive skewing of the gains of productivity over that time from labor to capital. I mean we live in a time where a public servant running for President in 2008 (McCain) couldn’t say for sure how MANY HOUSES his family owned. I mean that is steps above the now common middle class standard that every kid has his or her own bedroom. And you don’t have to buy into the standard right wing trope that “Even Louis XIV did not have running water, a fridge or an Obamaphone” to assent to the proposition that living standards have improved since 1724. And yet people are still poor. Even if they do have an indoor toilet.
Yes wages are stagnant. And yes this is unfair. And yes citing average numbers whether median or mean don’t necessarily capture every nuance of actual distribution of absolute or relative goods. But none of that totally waves away the fact that on the whole Real Wages continue to increase over time. And so by definition average Basket of Goods.
The core: “Real Wage is the premium of wage increases over consumer inflation.”
thanks Bruce
i was about to add that i can’t imagine that ANYONE will not experience at least a 2% growth in his wages by 2035. Which would mean that even with the tax increase they would be at least as well off as they are today.
actually that 2% tax increase won’t be reached until
late in this century (after 2090) because those tenth of a percent at a time tax increases push back the rate of decline in the Trust Fund. So maybe I could say that unless the very poorest don’t get at least a 2% raise by the end of the century they will STILL be doing better after the tax increase than they were before it.
but really, Warren, a 1.2% per year increase in the real wage per year, low by historical standards, really will push the average wage up to two and a half times as big as it is today. And it would push the less than average wage up to two and a half times as big as IT is today.
that’s just math.
Thank you, Bruce.
Using the numbers you provided, the Real Wage Differential between 1960 and 2010 was +59.4%, or 0.94% per year over those fifty years.
Warren
1) check your math and
2) what’s your point?
Warren without some tedious rechecking of your math I can’t tell for sure but I strongly suspect that 0.94% was the result of simple averaging that ignored compounding.
Perhaps you could show your calculations for us.
Of course. The data for the Real Wage Differential taken from the page Bruce provided are:
1960 to 1965: +1.98%
1965 to 1970: +1.61%
1970 to 1975: -.22%
1975 to 1980: -.04
1980 to 1985: +1.30%
1985 to 1990: +0.94%
1990 to 1995: +0.51%
1995 to 2000: +2.89%
2000 to 2005: +0.22%
2005 to 2010: +0.22%
Those are averages, of course. We will assume they are geometric averages.
So the increase over each five-year period is computed as follows:
1960 to 1965: (1+0.0198)^5 = 1.1029987954
1965 to 1970: (1+0.0161)^5 = 1.0831341698
1970 to 1975: (1-0.0022)^5 = 0.9890482936
1975 to 1980: (1-0.0004)^5 = 0.9980015994
1980 to 1985: (1+0.0130)^5 = 1.0667121132
1985 to 1990: (1+0.0094)^5 = 1.047891945
1990 to 1995: (1+0.0051)^5 = 1.0257614299
1995 to 2000: (1+0.0289)^5 = 1.1530969837
2000 to 2005: (1+0.0022)^5 = 1.0110485066
2005 to 2010: (1+0.0022)^5 = 1.0110485066
To get the geometric mean of all these numbers, we multiply them together to get 1.5937710879 (the 59.4% increase I mentioned), then raise that to the power of 1/50:
1.5937710879^(1/50) = 1.009365645
That gives us a 0.94% annual increase in the Real Wage Differential over those fifty years.
Adding in the individual years 2011 through 2015 brings that up to 0.954% per year.
The POINT is simply to counter Coberly’s assertion that, “a 1.2% per year increase in the real wage per year [is] low by historical standards.”
In fact, a 1.2% annual increase in the real wage is HIGH by the historical standard defined by the last 55 years.
It’s just math.
Wharton did its write up for SS a week ago. This link is to an interactive that allows simulations of different policy options.
Note that Wharton thinks that the SSTF will dry up by 2030 versus SSA at 2034. This difference makes the I&P tax increase 4%.
The difference between SSA and Wharton is the very optimistic assumptions that SSA uses.
The Wharton simulation model:
http://www.budgetmodel.wharton.upenn.edu/social-security-policy/
A discussion of the 2016 SSA assumptions:
“I strongly suspect that 0.94% was the result of simple averaging that ignored compounding.”
Bruce, your assumption that simple (arithmetic) averaging would give a lower number than geometric averaging is correct. Unfortunately, MY assumption that the SSA would be using geometric averaging was not.
They provide both single year data and averages for 2005-2010 (by which they mean the END of 2005 to the END of 2010), and for 2007-2015 (end of 2007 to end of 2015). Their average annual numbers were:
2005-2010: +0.22%
2007-2015: +0.45%
Using arithmetic averages, I did get +0.216% for the first, and 0.451 for the second. However, the geometric averages are only 0.207% and 0.440%.
So the number I came up with, 0.954% over the last 55 years, is also too high.
Krasting the Wharton authors are Smetters, Orszag, MacGuineas, and Goolsbee. All pretty much confirmed Center Left to Center Right Budget hawks and the first three with a professional committment to ‘Crisis’ and ‘Reform’ There is no reason to prefer their conclusion to those of the OACT before the fact. Once again you are making any appeal to authority rather than defending the assumptions in question.
I’ll take a look at Investors.com. But don’t expect much difference.
Investors.com. Fucking Jed Graham. Which IMHO is to be kind. The guy is not an analyst he is a polemicist. Has been on a Jeremiad against SocSec for years and whose arguments (like yours) mostly come down to “I know you are but what am I?”
Warren. Maybe you could try again using actual single year tables.
https://www.ssa.gov/OACT/TR/2016/lr5b1.html
I don’t see how you can examine that number series and get an average of less than 0.954%. No matter how many dimensions you want to apply to your geometric averages.
1960 1.68%
1961 0.41%
1962 3.69%
1963 1.57%
1964 3.34%
1965 0.90%
Even ignoring compounding I don’t see how you get to an average of 1.10%.
You know what they say about “assume”? Makes an ‘ass’ out of ‘u’ and ‘me’. The difference being I already know I am an ass.
http://www.budgetmodel.wharton.upenn.edu/social-security-policy/
Not that the Wharton model arbitrarily assumes the “Lift the Cap” would only raise ‘Taxable Maximum’ under all possible scenarios to $400,000. This seems quite artificial to me in light of proposals from Sanders and Clinton that would start the new take at $250k and not cap the max at all.
Leaving that aside even under Wharton’s assumptions an increase of FICA to 15.4% and taxable maximum to $250k still would make SocSec solvent over the 75 year window.
https://www.ssa.gov/OACT/TR/2016/lr5b1.html
1995 1.80%
1996 1.10%
1997 3.35%
1998 4.74%
1999 2.64%
2000 2.61%
Warren’s geometrical average: 1.15%
It must be higher math. Certainly it is over this man’s head.
Thank you, Bruce.
The single-year numbers confirm that the SSA is using arithmetic averages, not geometric averages.
Using the single-year data, the Real Wage Differential has a geometric mean of +0.948% per year over the 56 years (1960 is not part of the averages given in the original tables you linked to). Even the arithmetic mean was only +0.969% per year.
Let’s look at just the numbers you quote above:
1960 1.68%
1961 0.41%
1962 3.69%
1963 1.57%
1964 3.34%
1965 0.90%
The “1960 through 1965” average was actually from the END of 1960, so does not include the 1960 number.
The arithmetic mean is computed as:
( 0.41 + 3.69 + 1.57 + 3.34 + 0.90 ) / 5 = 9.92 / 5 = 1.984.
Rounding puts that at 1.98% — exactly what appears in the first page you cited.
The geometric mean is computed as follows:
( 1.0041 * 1.0369 * 1.0157 * 1.0334 * 1.0090 ) ^ (1/5) – 1 =
1.1027598387^(1/5) – 1 =
1.0197558097 – 1 =
0.0197558097 = 1.976%
In this particular example, both round to 1.98%, but that is not always the case.
The most variance was the 1975-1980 average. The reported (arithmetic) average was -0.04%, while the geometric mean was -0.122%.
For the late 1990’s:
1995 1.80%
1996 1.10%
1997 3.35%
1998 4.74%
1999 2.64%
2000 2.61%
(Again, the 1995 number is not part of the SSA’s reported 1995 through 2000 average.)
The reported (arithmetic) average was 2.89% (2.888%, then rounded up).
Had they used a geometric mean, they would have gotten 2.881%, and rounded down to 2.88%.
Bruce
the purpose of Krasting certainly, and Warren probably is to throw sand in the eyes of the readers. They raise objections that are outside the sphere of discussion : namely what does the Social Security Trustees Report mean in terms that average workers can relate to.
Bringing in a whole other set of projections simply muddies the waters. I do not have the time to examine all of the loose claims, so they can tell their fans (themselves?) that they have bested me in argument. Well, so be it.
To be honest, I don’t check Warren’s math or numbers. Again, I rely here entirely on the Trustees numbers.
The Trustees Report is THE standard for this issue.
and just suppose i was wrong about the historical rate… does it make any material difference to anyone? nearly ANY rate of growth would make the worker better off after 20 years, not to say 75 years, than he is today, even with the 2% ultimate tax increase.
and for those workers who see less than the average growth, or even no growth at all, or even negative growth, Social Security is still going to provide them a much better retirement than they would get without it.
Social Security was designed as insurance for those who fall behind.
That’s what it’s for.
But don’t take the bait, this is sand in the eyes stuff. In the real world your wages are going to go up about 1.2% per year, and you will have about 30% more in your pocket in 2035 than you have today, even if you have to put 0.1% per year into Social Security.
After that your income should continue to go up about 1.2% per year, but the tax rate will NOT need to increase further.
Bruce,
I am so sorry. I see your confusion now!
OK, let me quote again what you said:
——————————–
1995 1.80%
1996 1.10%
1997 3.35%
1998 4.74%
1999 2.64%
2000 2.61%
Warren’s geometrical average: 1.15%
—————————
You got THAT last number from this calculation I gave:
“1995 to 2000: (1+0.0289)^5 = 1.1530969837”
That 1.15 number is NOT the geometric mean, but just compounding for five years the average number the SSA gave for that five-year period. At the end of 2000, the Real Wage Differential was 1.15 times what it was at the end of 1995.
It was only an intermediate step in the calculation of the geometric mean of the entire 55-year time span.
Coberly, I also apologize to you.
I did not intend to get into a deep discussion of projections and geometric means versus arithmetic means.
I only meant that, as we all know, real wage stagnation, especially for those most reliant on the OASDI program, IS a major issue.
I agree with you that a tax increase is necessary to keep the program providing the benefits it does.
Warren none of that backtracking and obfuscations gets you a pass on your initial gambit:
“That gives us a 0.94% annual increase in the Real Wage Differential over those fifty years.”
or still less this:
“So the number I came up with, 0.954% over the last 55 years, is also too high.”
You are still presenting us with a bunch of gobblygoop and trying to convince us it is Gooseberry Pie.
“That 1.15 number is NOT the geometric mean, but just compounding for five years the average number the SSA gave for that five-year period. At the end of 2000, the Real Wage Differential was 1.15 times what it was at the end of 1995.”
Translated into English Real Wage grew by 15% over five years. Or around 3% per year. Or as you managed to say in your backtracking:
“The reported (arithmetic) average was 2.89% (2.888%, then rounded up).
Had they used a geometric mean, they would have gotten 2.881%, and rounded down to 2.88%.”
Sir it wasn’t me that was trying to pass off 3% as 1%. That was you.
Bruce,
The computations I gave are still correct: the Real Wage Differential has a geometric mean of +0.948% per year over the 56 years. If you like, I can provide you the calculations using the year-by-year data, rather than the five-year averages.
I never tried to pass off a 3% increase as 1%. The 1.15 number (on which I did NOT put a percent sign) YOU misinterpreted, even though there is no percent sign on it and the calculation was quite clear:
“(1+0.0289)^5 = 1.1530969837″
You have the numbers provided by the SSA. If you can come up with a different value for the annual Real Wage Differential over the last 56 years, please do.
But, as Coberly said, it does not really matter. What matters is that, to continue to pay projected benefits, the tax must increase.
Oh bullshit Warren. The conclusion you drew from that series of calculations was, and I quote:
“In fact, a 1.2% annual increase in the real wage is HIGH by the historical standard defined by the last 55 years.” After saying:
“Using the numbers you provided, the Real Wage Differential between 1960 and 2010 was +59.4%, or 0.94% per year over those fifty years.”
You presented those results as being EXACTLY the “annual increase in real wage” and at now point conceded that the real number was for most subperiods was significantly higher.
Warren you made a claim that would be understood by anyone and everyone that Real Wage increased on average by less than 1% per year and so that claims that it would go up by 250% over the course of 75 years were ridiculous. After using the ‘argument’: “I have serious doubts about that assumption.” and citing an article which didn’t address the issue directly.
When called on your numbers you began spinning madly and invoking some sort of “geometric mean” without ever explaining how or why that would challenge Dale’s numbers.
Now you fall back on “I never tried to pass off a 3% increase as 1%” No you only presented numbers in a deliberate way to make readers THINK you were doing that. All with some bullshit veneer of sophisticated calculations to produce a number series that you now concede mean nothing to the average reader.
But oh well “it does not really matter”. Yeah because I have unlimited time to uncover your distortions.
“You presented those results as being EXACTLY the ‘annual increase in real wage’ and at now point conceded that the real number was for most subperiods was significantly higher.”
I made no such concession. In fact, it would be wrong to do so. Look at the SSA numbers again:
1960 to 1965: +1.98%
1965 to 1970: +1.61%
1970 to 1975: -.22%
1975 to 1980: -.04
1980 to 1985: +1.30%
1985 to 1990: +0.94%
1990 to 1995: +0.51%
1995 to 2000: +2.89%
2000 to 2005: +0.22%
2005 to 2010: +0.22%
Of those five-year periods, only four are over the 0.94% geometric mean. Five are below the mean, and one is at the mean.
“When called on your numbers you began spinning madly and invoking some sort of ‘geometric mean’ without ever explaining how or why that would challenge Dale’s numbers.”
A geometric mean is used with geometric progressions, such as growth in prices, wages, etc. If growth is constant, the arithmetic average will match the geometric. Let’s take a five-year example, where, starting at $100,000 your wages go up 3% at the end of each year, so we multiply by 1.03 each year.
Start: $100,000
End of 1st Year: $100,000 * 1.03 = $103,000
End of 2nd Year: $103,000 * 1.03 = $105,090
End of 3rd Year: $106,090 * 1.03 = $109,273
End of 4th Year: $109,273 * 1.03 = $112,551
End of 5th Year: $112,551 * 1.03 = $115,927
Doing the math another way:
Start: $100,000
End of 1st Year: $100,000 * 1.03^1 = $103,000
End of 2nd Year: $100,000 * 1.03^2 = $105,090
End of 3rd Year: $100,000 * 1.03^3 = $109,273
End of 4th Year: $100,000 * 1.03^4 = $112,551
End of 5th Year: $100,000 * 1.03^5 = $115,927
Now, let’s take and “average” of 3%, but unequally: 1%, 2%, 3%, 4%, and 5% raises:
Start: $100,000
End of 1st Year: $100,000 * 1.01 = $101,000
End of 2nd Year: $103,000 * 1.02 = $103,020
End of 3rd Year: $106,090 * 1.03 = $106,111
End of 4th Year: $109,273 * 1.04 = $110,355
End of 5th Year: $112,551 * 1.05 = $115,873
As you can see, we have a LOWER salary at the end. The geometric mean is
(115873/100000)^(1/5) – 1 = 1.0299029016 – 1 = 0.0299029016 = 2.990%
Just to run through it with the geometric mean, to show that we get the same end result:
Start: $100,000
End of 1st Year: $100,000 * 1.0299 = $102,990
End of 2nd Year: $102,990 * 1.0299 = $106,070
End of 3rd Year: $106,070 * 1.0299 = $109,242
End of 4th Year: $109,242 * 1.0299 = $112,508
End of 5th Year: $112,508 * 1.0299 = $115,873
Another way is, (1 + 0.0229)^5 = 1.15873.
That was what I was doing with the line that confused you — extending the annual average in the trustees report over those five years to get the END RESULT of average increase over that period:
“(1+0.0289)^5 = 1.1530969837″
I hope that helps. You should be able to plug the numbers from the Trustees’ Report into a spreadsheet and get the same numbers.
“Bringing in a whole other set of projections simply muddies the waters.”
I think you could stir that pot all day long and still have the same soup.
Both the taxes and the benefits go up proportionately, as does the cap. So the difference between 0.95% growth in real wages vs. a 1.2% growth probably has no effect whatsoever on the long-term solvency of Social Security. Given the same rate of return on their investment, and given that the workers are paying for their own retirement, then no matter what percentage they save, they will have the same benefits, as a percentage of their income, no matter what the projected growth of that income.
Warren
I actually think I know what you are doing with the arithmetic but my eyes glaze over: why all the smoke and drums over something that makes no difference. the 0.94% real wage differential would result in wages being “only” twice as high 75 years from now as they are today. Is the difference between one guess and another about twice as high vs 2 and a half times as high… 75 years from now, maybe, without regard to the much more important things that are going to happen to you in the meanwhile?
And then when I get to your last comment (10;27pm) I have to think you really have no idea what we are talking about at all.
The wage differential is one factor in the computation of “total payroll” out of which taxes and benefits will be paid. As long as the tax rate is adjusted to match the needed benefits… without impoverishing the worker… the .94 real wage factor vs the 1.2 the Trustees “project” (not predict) has nothing to do with “solvency.”
It would have been better if I had just said average real wages will be more than twice as high as they are today… and left out the 1.2% being “low by historical standards.” you’d have to know what i meant by “historical standards.” your choice of 1960 to 2015 is a reasonable one. but someone might argue that real wage increases for the last twenty years have been “below historical standards.”
no. i don’t want to argue about that.
there is no real “rate of return” on SS investments. SS’s real investment is in the American economy. pay as you go. the Trust Fund does have an effect, and the interest on the trust fund has an effect, but if the trust fund disappeared entirely, or failed to earn any interest, the effect on the needed tax rate would be on the order of 1%… needed, that is, to pay a level of benefits that will keep even low income workers out of grinding poverty in old age.
i think if you could understand the point of the whole argument you would not waste our time trying to prove me wrong about something so nearly inconsequential as the difference between a real wage growth of 0.94% vs 1.2%. Yes it would make a real difference in the living standards of those “young” 75 years from now. But it’s a GUESS. and it is NOT SMART to get exercised about differences in guesses about something 75 years from now.
warren
as for stirring the pot of soup..i have no idea what you are trying to say.
i was trying to say that when the point of my essay was “what the Trustees Report really says in common language” it seems to me to muddy the waters to bring in what someone else says.
moreover, from your arguments here i get the feeling that if i told you that if you paid me 2% of your wages i would guarantee your wages would more than double to 250% what they are now, you would feel cheated if they only just doubled to 200%.
note, i did not specify a time period. you might argue that if you invested that 2% yourself you would more than get a 250% return in the same. but it’s unlikely you would invest your whole wage, so it’s unlikely ( i think) that you would end up with a return of 250% of your wages year after year and rising.
i think your problem is that you just don’t like Social Security… you don’t like being forced by the government and you think you can do better on your own. maybe. but I have had to learn to accept “being forced by the government” because I know I can’t do better on my own. and i am very very certain none of us can. you think you can but you forget that you are not on your own. while your private investments are doing very well, they would not be doing very well if there was no government “forcing” the rest of us to do what it takes to make a country work.
there are limits to how much i “believe” in this. that’s what politics is for. and when politics fails to protect what i regard as important (a lot more important than some percent of my money) I will have to find another way to save what i regard as important. till then, the best way i can see to protect the vast majority of american people from deep poverty in old age is Social Security, which needs a tiny tax increase to do it’s job.
Warren your opening gambit at 8:36 PM:
Your more or less closing end game:
So why did you fucking bother? And now continuing on? Of course one answer would be to prove that you were the smartest hog in the holler. The other that it is important to hijack any Social Security thread in ways that undermine the argument being made by Dale and others.
Which leaves the question for Warren: Are you just motivated by a desire to hog wrestle in the mud for the hell of it? Or are you a deliberate troll? Because for the life of me I am not seeing the value added as measured by understanding of Social Security financials.
And no it doesn’t help. Do this brother a solid and work the following calc:
Start: $100,000
End of 1st Year: $100,000 * 1.05 = $?
End of 2nd Year: $? * 1.04 = $?
End of 3rd Year: $? * 1.03 = $?
End of 4th Year: $? * 1.02 = $?
End of 5th Year: $? * 1.01 = $?
Not for the first time you have taken a distribution and thrown away the top tail. Banking on people not understanding how numbers work.
Okay I did the math and the result is not much different at $115,880. But this goes to show that an early bump carries through and that it takes a lot of drop off (from 5% to 1%) to offset the compounding effect. Perhaps one of us could try this again with a series of 5%, 2%, 4%, 3%, 2%.
In any event, and in something the Trustees acknowledge explicitly the real driver is the ultimate number. If you assume ultimate at 1.2% as against 1.5% as against 2.0% then the end results at 75 years differ by a lot.
Sure, Bruce. Here you go:
Start: $100,000
End of 1st Year: $100,000 * 1.05 = $105,000
End of 2nd Year: $105,000 * 1.04 = $109,200
End of 3rd Year: $109,200 * 1.03 = $112,476
End of 4th Year: $112,476 * 1.02 = $114,726
End of 5th Year: $114,726 * 1.01 = $115,873
As you can see, it comes out exactly the same as doing the low end first. Of, course, you make more money along the way, since you are earning more earlier, but your salary at the end of the fifth year is the same either way.
That is the Commutative Property of Multiplication:
(1.05 * 1.04 * 1.03 * 1.02 * 1.01) = (1.01 * 1.02 * 1.03 * 1.04 * 1.05)
“And then when I get to your last comment (10;27pm) I have to think you really have no idea what we are talking about at all.”
Even so, you rephrased it perfectly:
“As long as the tax rate is adjusted to match the needed benefits… without impoverishing the worker… the .94 real wage factor vs the 1.2 the Trustees ‘project’ (not predict) has nothing to do with ‘solvency.'”
“[There] is no real ‘rate of return’ on SS investments. SS’s real investment is in the American economy.”
And the American Economy will not be affected significantly by the proposed increase in the FICA tax. The extra money will go into the General Fund (with equivalently valued bonds going into the SSTF holdings). So people will either pay less in income taxes (balancing the increase in FICA taxes), or the government will borrow less money from other sources (so future taxpayers will pay less in interest on those bonds, balancing the greater interest they will pay on SSTF bonds).
Again, I do apologize for the tangent. The point was only that, while each individual may see a reasonable increase in his wages each year, as a whole — not so much. A 30-year-old worker today is not much better off than 30-year-old worker twenty years ago. That is one of the rallying cries of the progressives, is it not? That productivity gains are not getting to the workers? That was all I wanted to say.
I really did not expect any push-back on that point, since it is such a staple truth of the progressives, and since you all had the Trustees’ Report numbers and could do such math yourselves. When that turned out not to be the case, it became a matter of trying to explain the calculations.
I do not think it wise to raise taxes with such a large Trust Fund balance as currently. I follow the actuarial math okay, but it seems to me the bigger political dispute is whether or not or country will truly cope with the fiscal situation of a long period of net redemption of the Trust Fund. Taking $28 a week may square the long term math, but the country still needs to show it is capable of a big time redemption program. If that remains an open question, this tax could be just a very unprogressive revenue stream of general revenues. The argument that the Trust Fund isn’t just pieces of paper only works if future Congresses decide to manage other spending and other revenue to treat the debt as it was constructed. I’m not feeling that yet.
Eric:
If you follow Coberly’s plan, it is a gradual increase which will result in payouts exceeding revenues for some time to come and a gradual drawdown of the TF. I do not believe (Bruce/Coberly will confirm) it was meant for the SS to have such a large TF. A 75 year actuary plan is silly anyway as things change over time in the economy. A better method would be in 10 year increments even with the media sky-is-falling pronouncements.
I disagree, Eric. Either the General Fund will borrow from the Trust Fund, or from other sources. Either way, those bonds will have to be paid back.
Sorry I missed out on the great real wage differential argument. It would be simpler just to use the Trustees Report, where they state, in the section just above Table V.B1., “For the 41-year period from 1966 to 2007, covering the last five complete economic cycles, the real-wage differential averaged 0.89 percentage point, the result of averages of 1.48, -0.01, 0.47, 1.55, and 0.61 percentage points over the economic cycles 1966-73, 1973-79, 1979-89, 1989-2000, and 2000‑07, respectively.” (You need to weight each value by the length of the cycle.) So 1.2% is a little above the historical average, but not much, and the latter still gives real wages about twice the current ones in 75 years.
Warren
aside from feeling hijacked by an inconsequential argument, i’d let the whole thing go…
but i can’t let your 7:19 go without comment.
“the extra money” will not go into the general fund. it will closely balance the yearly (otherwise) deficit between tax income and outgo for benefits. the Trust Fund will NOT be drawn down in dollars, but will be drawn down as a percent of payroll… leading to a decline in the TFR to just over 100… about where it is supposed to be. That TFR will reduce the required tax increase about 1% due to the interest it generates. the same interest the “general fund” would have to pay if it borrowed the money anywhere else… which it is going to do. unless of course it pays cash now to retire the Trust Fund and allows SS to lend the money to another eager borrower.
and yes the worker will see a “reasonable increase” in his wages each year. i can’t imagine why you think that’s “not so much.” it is, as you have pointed out, projected to be a little larger than the average since 1960. my point with that was simply to show the reader that even with the FICA tax increase, he would have more real dollars in his pocket each year while saving that “tax” increase” in a very safe place so he can be sure of being able to retire when he needs to.
you seem to have missed the point entirely with your comparison of percents and largely meaningless arithmetic that shows you believe in the ultimate (in a religious sense) reality of numbers and abstract calculations more than you believe in the actual experience of real people.
in matters of SS I am definitely not a “progressive” which word seems to mean these days people who want to turn SS into a welfare scheme, just like the bad guys say it already is.
i can do the math myself. doesn’t mean i can follow your math. sorry, but i had this experience when i taught math. i could find the answer myself in about a tenth the time it took to figure out what the student was doing wrong… or even doing right by a method i did not use myself.
i don’t want to make this personal, but your very last sentence suggest Bruce may have been right about your trying to prove (to yourself at least) that you are the smartest hog in the wallow. well, you might be. but you still don’t understand what the problem is even about.
Eric377
please look at my reply to Warren (11:21). the tiny tax increase would not do what you are afraid of. the Trustees “immediate” 2.66% increase might. But even there, I am not so sure the country’s fiscal situation is as dire as the deficit hawks claim. i think they know their claims are false, but it helps their people win elections.
i’m sorry, but i have looked at this thing hard enough to be fairly sure i understand it and the consequences in some detail. hard to explain the whole thing in a few sentences. but most of the comments i get back are grounded in the arguments people read in the newspapers which are mostly false, or beside the point.
“'[The] extra money’ will not go into the general fund. it will closely balance the yearly (otherwise) deficit between tax income and outgo for benefits.”
Under current law (without any tax increase), the Trust Fund will not start to go down until 2022: https://www.ssa.gov/oact/TR/2016/VI_C_SRfyproj.html#306103
That surplus (extra money) will go into the General Fund in exchange for bonds to be held in the OASI Trust Fund. If we increase the FICA tax from 12.40% to 14.98%, as recommended in the report, then there will be even more extra money going into the General Fund (over $170B more in 2017 alone).
“[You] seem to have missed the point entirely with your comparison of percents and largely meaningless arithmetic that shows you believe in the ultimate (in a religious sense) reality of numbers and abstract calculations more than you believe in the actual experience of real people.”
That’s what I don’t get — what “experience of real people” would lead those people to believe that we would see long-term real wage growth 34% higher than it has been for the last 55 years?
(1.20-0.89)/0.89 – 1 = 34.8%
Or 18% higher than the last 20 years?
(1.20-1.01)/1.01 -1 = 18.8%
Or perhaps you do not mean the actual experience of those writing the Trustees’ Report, but rather that of individuals in the workforce? Do not conflate the growth of individual trees with the average height of the forest. The Trustees’ Report is only concerned with the average height of the forest.
While you may call it a “tiny” tax increase — only 2.58% of income if the Trustees’ recommendations are taken — but it can also be viewed as a 20% increase in the tax:
(2.58/12.4) = 20.8%
“It would be simpler just to use the Trustees Report, where they state, in the section just above Table V.B1., ‘For the 41-year period from 1966 to 2007, covering the last five complete economic cycles, the real-wage differential averaged 0.89 percentage point, the result of averages of 1.48, -0.01, 0.47, 1.55, and 0.61 percentage points over the economic cycles 1966-73, 1973-79, 1979-89, 1989-2000, and 2000‑07, respectively.'”
Indeed, it would be simpler. Unfortunately, it would also be wrong.
First, they took an arithmetic mean of the annual numbers, weighted them by the number of years of each cycle, and then used that to get an arithmetic mean of those. (And they rounded up from 0.8859%)
If, instead, you use a geometric mean of the single-year data, the number is lower: 0.8614%
The differences are small, to be sure, but it is still disappointing to see the Trustees’ using incorrect methods.
Warren
get help.
you are playing with numbers to no purpose but to confuse yourself.
the reason i wrote the post was to demystify the Trustees numbers.
The very first thing I noticed in a trustees report of some years ago was that they compared a 25% benefit decrease with a 33% tax increase. percent comparisons are meaningless if the base changes.
that 33% tax increase is 33% of 12%, which is 4% of payroll. of which the employer pays half. so a 2% increase in the payroll tax over 75 years, mostly front loaded…. and so it can be reached by raising the tax less than one tenth of one percent per year… or about one dollar per week per year. while wages are predicted to go up over one dollar per week per year.
that’s pretty much the whole story. you can keep playing with yourself if you want, but i wish you wouldn’t do it here.
Warren – You point us to a table that shows the OASI TF running dry in 2022. Thank you, but if you want to drop dates you need to drop the correct one. SS includes DI. The TF and revenue sources have been redirected several times (most recently last year). To consider what the termination date of the SSTF you have to look at the combined funds (as does SSA).
Go to IV.A3 for the correct table. You will see that the last year of OASDI surplus is 2019.
Quite correct, Mr. Krasing. I was only looking at the OASI Trust Fund.
“… a 2% increase in the payroll tax over 75 years, mostly front loaded…. and so it can be reached by raising the tax less than one tenth of one percent per year”
I really don’t see how you come up our needing only a 2% increase over 75 years, when the Trustees say we need a 2.58% increase NOW, not in 0.1% increments over 26 years.
“The differences are small, to be sure, but it is still disappointing to see the Trustees’ using incorrect methods.”
The Trustees are not using an incorrect method. They claim to be calculating the average and they do it by calculating an arithmetic mean, which is the most common meaning of “average.” There are advantages to using a geometric mean, but not to do so is not incorrect.
If you want to get picky (which evidently you do), then you shouldn’t be using the real-wage differential numbers at all, since these are the differences between the nominal wage growth and the increase in CPI. This is an arithmetic difference, which people use all the time – but is it “correct”? If wages go up 21% and prices go up 10%, is that a real wage increase of 11% (21%-10%), or is it 10% [(1+0.21)/(1+0.1)-1]? It is the latter, since if your wages go from $100 to $121 but the price of what you buy goes from $10 to $11, the number you can buy goes from 100/10 = 10 to 121/11=11, which is a 10% increase.
So if you want to be “correct”, you should calculate the geometric mean using the numbers in the “Average annual wage in covered employment” column, and then do the same using the CPI column and divide (and subtract 1, of course). But the number will almost certainly not be much different from the two numbers you’ve already got.
“They claim to be calculating the average and they do it by calculating an arithmetic mean, which is the most common meaning of ‘average.’ There are advantages to using a geometric mean, but not to do so is not incorrect.”
That is an incorrect way of calculating an average percentage change over time. In fact, it is ILLEGAL to use an arithmetic average when advertising an investment.
As for the rest of your comment, you are entirely correct. With that method, we go down from 0.8614% to 0.8606%.
Thank you.
for @Warren the troll…
Coberly says, “Readers with a sharp eye may have noticed that the Trustees project an increase in the combined tax of 2.66%, but I ended up talking about increasing the workers tax 2% over twenty years and the employers share another 2% over that, for a total of about a 4% increase. ”
Warren has sharp anger, but neither sharp wit nor analysis… nor eyes.
2% on employee (covered wages only, looks like). 2% on employer share (now you can debate “incidence”.
Entirely ignoring the point Coberly makes. There is no crisis STILL. Also the standard media debate is regurgitating the same-old, same-old cut benefits bs.
Bruce, can you talk about the methodological changes in this year’s TR? It looks like they are strengthening the methodology and if I read it correctly, this moves the figures towards better (longer term) solvency with the same economic assumptions.
Thank you, Grumpy, I did miss that.
Some will argue, though, that it all comes out of the compensation pot, and if employers have to pay 0.1% more every year in payroll taxes, they will increase wages that much less.
Warren and Krasting
it’s so much fun dealing with idiots.
the “trust fund runs dry” in 2024 (combined OASI and DI). try reading the report.. and understanding it instead of making up your own facts.
Warren, I can’t help it if you can’t understand the difference between 2.66% “immediate and permanent” and one tenth of one percent each whenever the Trustees (would) Report “short term actuarial insolvency.”
think of it as an exercise for the reader.
any honest reader who didn’t understand it when i explained it before feel free to ask me, and i’ll go over it again.
“The ‘trust fund runs dry’ in 2024 (combined OASI and DI). try reading the report.. and understanding it instead of making up your own facts.”
Whom are you quoting, Coberly? No-one said that on this post.
“I can’t help it if you can’t understand the difference between 2.66% ‘immediate and permanent’ and one tenth of one percent each whenever the Trustees (would) Report ‘short term actuarial insolvency.’”
You never said that, either. Rather, you said “one tenth of one percent for twenty years” for both the employers and the employees, with no qualifier about “whenever the Trustees (would) Report ‘short term actuarial insolvency.’”
Whom are you quoting there?
In any event, Grumpy already pointed out my error, and I acknowledged it.
“[Any] honest reader who didn’t understand it when i explained it before feel free to ask me, and i’ll go over it again.”
And I did, didn’t I? Today, at 3:25 pm. Perhaps it was that I did not phrase it as a question. Grumpy was not confused by that, and answered for you.
Warren
exchange between you and Krasting above:
Bkrasting
July 2, 2016 3:04 pm
Warren – You point us to a table that shows the OASI TF running dry in 2022. Thank you, but if you want to drop dates you need to drop the correct one. SS includes DI. The TF and revenue sources have been redirected several times (most recently last year). To consider what the termination date of the SSTF you have to look at the combined funds (as does SSA).
Go to IV.A3 for the correct table. You will see that the last year of OASDI surplus is 2019.
Warren
July 2, 2016 3:21 pm
Quite correct, Mr. Krasing. I was only looking at the OASI Trust Fund.
For any who are interested, Monsieur Coberly publishes his numbers here:
https://drive.google.com/folderview?id=0B4HUzhAPMGaLfm9wOTJaSFVaSEFneEtDeUxxdjI1ZDdERmxnVm9ZSlY3X29fU1ZOcFFXSlE&usp=drive_web
He and I seem to be in violent agreement. We both acknowledge that the FICA tax needs to be raised to maintain the solvency of the OASI program, and I like his incremental approach to doing so.
I do consider it unfortunate that we got into weeds, but I do hope that some us who did not pursue mathematics-intensive fields come away with a better understanding of calculating average returns.
Allow me to say that one of my dearest friends, God rest his soul, earned his PhD in Medieval Scottish History. He was one of the smartest people I have ever known, despite his lack of mathematical knowledge. Knowledge in one particular field or another does not indicate overall intelligence.
Thank you, Coberly — a paraphrase then, not a direct quote. That’s why it did not come up in my search.
But I did not say it would run dry, did I? I said, “Trust Fund will not start to go down until 2022.”
THAT is a direct quote.
Do not assign to me things that I did not say.
Warren
I have said one tenth percent increase each whenever the Trustees project short term insolvency so many thousand times i assume you had heard it. just as apparently you assume i heard you “acknowledge your mistake. ”
the “whenever Trustees…” will turn out to be nearly every year for almost twenty years and then very much less often so that the final tax increae would be to 16.2% combined in about 2074, an increase of 3.8% over today, combined, or 1.9% each. Since this is less than one tenth percent each for each year for twenty years, you should think it was even less likely to fix SS than the Trustees 2.66 % “immediate and permanent” increase. actually it fixes it better and cheaper and forever.
but “acknowledge your mistake” and keep on throwing sand in everyones eyes.
and oh yes, i know the employers will find a way to claw back their one tenth percent, but that isn’t what they say when they call SS a “jobs killing tax.”
so I guess the poor worker is going to have to get by on two dollars less per week out of a pay increase of ten dollars per week… leaving him with a paycheck that is a 100% bigger than today’s out of which he will have to pay an extra 4% to himself so provide for his old age.
and unless the worker has some leverage over the boss or IS the boss, i suspect that he would never see either the “employer’s share” (which is the law) or even his own share unless SS forced the employer to pay it.
thing is, Warren, you don’t understand this, you don’t like it, but you think you can hurt it by standing here mouthing what amount to lies.
Warren:
Bkrasting
July 2, 2016 3:04 pm
Warren – You point us to a table that shows the OASI TF running dry in 2022. T
Warren
July 2, 2016 3:21 pm
Quite correct, Mr. Krasing. I
coberly does NOT publish his numbers on that website. my browser won’t even read that website.
i could send a spreadsheet to anyone who asks.
as for the intelligence of mathematicians, it’s even worse than Warren says: “Mathematics is the subject in which we never know what we are talking about or whether we are right.” [Bertrand Russell]
though he meant something else by that, I have known many people with facile symbol manipulation skills who didn’t understand the problem and never realized their answer was worthless.
“[Thing] is, Warren, you don’t understand this, you don’t like it, but you think you can hurt it by standing here mouthing what amount to lies.”
Perhaps you missed where I said, “[Coberly and I] both acknowledge that the FICA tax needs to be raised to maintain the solvency of the OASI program, and I like his incremental approach to doing so.”
———————————————-
Warren:
Bkrasting
July 2, 2016 3:04 pm
Warren – You point us to a table that shows the OASI TF running dry in 2022. T
Warren
July 2, 2016 3:21 pm
Quite correct, Mr. Krasing. I
———————————————-
I notice you cut off the end of the sentence, intentionally removing the context, in which I say where, exactly, he was correct:
I said, “Quite correct, Mr. Krasing. I was only looking at the OASI Trust Fund.”
My apologies again, sir. It seems like Bruce Webb did that, not you:
http://angrybearblog.strategydemo.com/2015/07/social-security-defender-archive-including-northwest-plan-docsspreadsheets.html
I was given the impression that you were one of the principal architects of the “Northwest Plan,” and that those were your spreadsheets on that site (under the “Northwest Plan” folder).
Is that correct?
BTW, I am using Google Chrome in Fedora.
Warren
i did nor “intentionally remove the context”/ i copied and pasted the relevant words.to help you remember what you said. if anyone wanted the context they had only to look up thread a few comments, or consult their memory.
just as the only person likely to persuaded by your wiggling is you.
as for the Northwest plan, I am, so far as I know, the only person who has actually taken the Trustees numbers and inserted the “one tenth percent” tax increases to see the effect on the solvency of Social Security. I don’t really care if i am the only person. I do care that “the people” understand what this means: There is no crisis in SS. SS will not burden the young. We, the workers who will get the benefits in the future, can pay for them ourselves by saving an extra dollar per week each year while our wages go up about ten dollars per week each year. (or whenever the Trustees Report short term actuarial insolvency).
Bruce Webb did good things with this that I could not do… such as bring it to the attention of the National Academy of Social Insurance who honored the plan with a note in their 2009 report on plans to assure SS solvency. He also named it “The Northwest Plan,” and was the first to point out that under the plan, the Trust Fund never decreases in absolute dollars… meaning it is never “paid back”, though at some point there was some disagreement as to who was paying back whom. Since the Big Liars like to pretend that Social Security is causing the debt/deficit, I thought it was important to make it clear that it is SS that has lent money TO the government, and the NW plan means that the government never has to pay the money back, though it does have to continue to pay the interest on the money it has borrowed.
“There is no crisis in SS.”
I agree, but there will be one if we do not implement something akin to the Northwest Plan.
“SS will not burden the young.”
I have come around to that view also (excepting those who do not live long enough to get benefits).
The Trust Fund is an accounting process. If we increase the FICA tax so that, 75 years from now, the Trust Fund is not decreasing in value, then no money will come out of the General Fund (i.e., income taxes) to redeem the bonds. If we do not raise the FICA tax sufficiently, the taxpayers of that time will simply have to pay more in income taxes to cover the bond redemption. Either way, the taxpayers of 75 years from now will be paying for the retirees of 75 years from now. It’s just a question of HOW they will pay — FICA taxes or income taxes.
If we did not have such a system, children would have to take care of their retired parents (since people are not saving for their own retirement), and the children would still be paying.
“Moreover, the average worker would only see about half of that cost. His employer pays the other half. ”
You must work for Santa Claus.
Most economists believe that the employee pays the employer’s portion of payroll taxes, unless you work for Santa Claus.
Joe
I’m not much interested in metaphysics. On my check it says “gross earnings” and then it says FICA deduction 6.2%
I know what nine New York Economists say, and I know who pays them to say it. But the actual reality (metaphysics) is a little more complicated than that.
I know from talking to real employers that they would not even pay the employee the employee’s share if the government didn’t force them to. “The market” would dictate that they pay the employee the least the employee would accept. Most employees only count the “take home” as their bottom line… what they need to survive on day to day. Retirement is a distant thought they can’t worry about until they get some leverage… about mid career unless they have a union or a rare skill.
That’s why I said the employee “sees”, not “pays.” ‘oo pays ‘oo” in an economy with complex feedbacks is just too much for me to sort out.
but if you want to believe that the employer’s share is “your money”, well, it is, but only when you get it, only after the government “forces” the employer to pay it.
thing is, it doesn’t matter ‘oo pays. i tried to show all the moving parts. you can worship one economist or another as you choose.
Joe
or to put it another way:
Your pay is 100 dollars. FICA is $6.20. Your net is $93.80.
if the employer’s share is “your money, then your “real pay” is $106.20
and you pay the “whole share, $12.40. Your net is $93.60
funny how that works.
Warren
there is hope for you yet.
see Joe the Economist. you might agree with him. from my point of view what humans believe has no necessary connection to reality. I try to show what the “facts” are … in this case “what the Trustees Report says when broken down to the individual level. I don’t much care for metaphysical fantasies.
Joe doesn’t know that “some economists” believe that the employer’s profit is “really” the employee’s money. I don’t play that game either.
Warren
just for the fun of it see if you can look at “low by historical standards” and see if there is a colorable interpretation that would make it not a wrong statement… even if you don’t agree with it.
i’d suggest looking at other “historical periods” (1932 to 2000?)
or just look at the numbers (not the average) and decide whether the fact that there are quite a few years when the number is higher than 1.2 would make 1.2 a “low” number. even if you don’t agree with it.
I would agree that taking the “average” over the time given in the Trustees Report is a reasonable interpretation. I would not agree that the difference between .94 and 1.2 is significant considering the uncertainties involved over 75 years, and the other facts relevant to what anyone alive today is likely to experience.
anyway the point here is not to get you to agree with me, but to get you to imagine that other points of view might not be “wrong.”
@Warren
Glad to have you supporting the Northwest Plan!
@Joe
“Economic theory holds that competition among employers forces them to pay workers according to their productivity. In this sense, the market for labor services operates like any other competitive marketplace in the economy. Businesses that pay their workers less than they produce will see their workforce jump to higher-paying competitors, while businesses that pay their workers more than they produce earn inadequate returns, lose money, or even go bankrupt. As a result, workers’ pay should closely track their productivity over time.”
The “wage stagnation” discussion proves that this hasn’t been happening. Employees don’t have the negotiating power that underpins the assumption about sharing productivity gains. The incidence of increases in employer share will fall almost entirely on the employer.
Believing otherwise is a lot like believing in Santa Claus! It’s a nice concept, but not real.
“[Just] for the fun of it see if you can look at ‘low by historical standards’ and see if there is a colorable interpretation that would make it not a wrong statement… even if you don’t agree with it.
[I’d] suggest looking at other ‘historical periods’ (1932 to 2000?)”
If you can find it, I’ll look at it. But just to get to 1.2% (which would still not make 1.2% “low”, only normal) would require an average Real Wage Differential of 1.34% from 1932 to 1960. It is quite possible that that happened, but at the price of a Great Depression beforehand and millions of dead workers in WWII, and not something that we can count on happening again.
“I would not agree that the difference between .94 and 1.2 is significant considering the uncertainties involved over 75 years….”
Well, the Trustees actually got 0.89% over complete business cycles (and a proper calculation would have yielded 0.86%), not 0.94%. But if you do not consider that to be a significant difference, how high would the historical standard have to be before you would consider 1.2% to be LOW, not just an insignificantly different?
“… and the other facts relevant to what anyone alive today is likely to experience.”
I had hoped the Trustees would say what those relevant facts are that lead them to assume a long-term average of wage differential of 1.2%. If they are in the report, I missed them.
“[The] point here is not to get you to agree with me, but to get you to imagine that other points of view might not be ‘wrong.’”
Certainly. I would love to see evidence that an average 1.2% Wage Differential is a reasonable projection. (Evidence that 1.2% is “low by historical standards” would probably just be depressing — evidence of a lost Golden Age for Joe Average.)
“If we did not have such a system, children would have to take care of their retired parents”
Apologies to coberly for going off on another tangent, but I have a comment about NPV. You can have the numerical ability to do an NPV analysis, but you need to make meaningful choices not just about the discount rate, but also about the monetary flows. Since SS is primarily Pay As You GO, a valid analysis is to ignore the time value of money and just compare the cash flows at time zero. (I see Andrew Biggs making a big deal of more money going out than taxes coming in and ignoring interest.)
Boiled down, you just have to ask if it is valuable to pool our resources to take care of everyone’s parents. The management costs of SS are far below those of private insurance, so unless you are unable to care about other people’s parents, the answer is clear.
Arne
I jumped on the tangent wagon when i saw i was not getting anywhere trying to stick to my own story.
i think you make a valid point here… though i am not sure you make it clear.
i don’t keep up with Biggs because my tolerance for clever lies is very low. one point about the NW plan is that it CLOSES the gap between the total income (FICA plus tax on benefits plus interest on Trust Fund) and benefits (plus costs of the program). Biggs is very good at talking about one aspect of the whole equation at a time and pretending that aspect is the whole gloomy picture.
so yes, i emphatically agree with you here that we are not talking about “how to make money on paper.” we are talking about how much we need to spend to get what we want and need, whether we think of that is “support for our elderly parents” or “paying for our own old age.” the fact is those turn out to be the same thing.
“[Unless] you are unable to care about other people’s parents, the answer is clear.”
If folks cared about other people’s parents (or even their own), would we need Social Security?
Warren
we got some work to do if we are going to teach you to use some imagination. (absolutely necessary in solving real world problems, or just getting along with people who have different ideas or use different words than you do.)
there is a difference between 200% and 250% of something that happened. there is no meaningful difference between 200% and 250% of something that might happen 75 years from now.
you and I are arguing about what “low” means. that is hardly well defined enough to be a meaningful argument.
i am prepared to agree that .94% is lower than 1.2%. I am not prepared to agree that it is significant though here i suspect most people would not agree with me: if we had no reason to compare the two numbers we would look around at what we have today and some people would be reasonably content that they have “enough,” and some people would be amazed at what we have compared to what we had before, and some people would be bitter because they did not have “more.” two of those views are sane. the last one is probably not, unless there is a real chance of doing something that creates a necessary “more.” it is questionable whether the planet can survive out demand for “more.” but it is certainly not a part of the mathematics that shows the Trustees 11 Trillion Dollar Deficit amounts only to a need for a dollar per week per year increase in the payroll tax, while the Trustees own projetions show a ten dollar per week increase in wages.
and for Joe, he can think of that as a two dollar per week increase in the tax out of an eleven dollar increase in wages. (not quite an accurate formulation, but hoping to make the idea more clear).
there has been a lost golden age for joe average over the last twenty years.. caused not by Social Security but by bank fraud.
i think it’s hilarious that people argue over a dollar increase in the payroll tax while the banks steal thousands of dollars from them every year.
and then there’s the point that you don’t lose the payroll “tax,” you get it back three times over when you retire. (and yes part of that three times is “inflation” but one of the points of SS is that it protects ordinary people from inflation… etc etc.
wish i could get you to focus on the realities here and not the imaginary numbers. (no not the square root of minus one.. the numbers that are more about imagined entities than anything meaningful in the eternal here and now.
i tried to
Warren, if people cared… would we need SS?
yes. SS provides people who care about their parents and other people’s parents and their own future old age with a way to pay for it that is protected from inflation, market losses, personal losses (death disability and failure to thrive, and failure to have surviving children, as well as failure of providence…. which you can be sure would affect 90% of the most caring people in the world, while the other 10% would be picking their pockets.
“The ‘wage stagnation’ discussion proves that [workers’ pay closely tracking their productivity over time] hasn’t been happening. Employees don’t have the negotiating power that underpins the assumption about sharing productivity gains.”
That is because the theory assumes that the worker is responsible for the increase in his productivity. If one has a plowman with a mule can plow 50% more than others can with their mules in the same amount of time, a farmer is likely to be willing to pay that plowman 50% more. If the farmer buys or rents a combine, and ALL the plowman can now plow five times as much in the same amount of time, why should the farmer pay more for their labor? The plowman are not working harder, nor is their increased efficiency in any way a result of their own effort.
In modern terms, if a computer programmer produced 50% more code with fewer bugs than most programmers produce in the same amount of time, his employer is likely to pay him more to keep him. The theory holds. However, one checkout clerk at a grocery store is not likely to be much faster than any other. They are far faster than clerks were before barcode scanners, but the clerks are not responsible for that increased efficiency, so it stands to reason that they would not get paid more to do it. And if they demand more, the grocery store owner will fire them and buy automated checkout systems.
Call this a “tangent” if you like, but it does go to the argument that a 1.2% average Wage Differential seems like an rather rose-tinted forecast.
“[Then] there’s the point that you don’t lose the payroll ‘tax,’ you get it back three times over when you retire.”
I think it is far more relevant to point out that (assuming the government programs didn’t change any) if we weren’t paying it in FICA taxes, we would just be paying it in income taxes.
Warren
I don’t know about “far more relevant” but I will take your point that if we weren’t paying it ourselves to ourselves in FICA taxes, the rich would be paying it in general taxes for welfare… which would make them cut it to the bone.
as for the rosy picture… first, look at the real wage differential between 1960(inclusive) and 1980. then look at it between 1960 inclusive and 2000.
if i took as my “historical standard” the first period i would have been “right” without equivocation. but Reagan and Bush managed to bring about an economy that lowered the the average yearly differential to a number even you might hesitate to argue was materially different from 1.2. Then we have the Bush/bank debacle and get what i hope is not a new historical standard.
and then you go back to your essentially Randian view of “economics.” Question for you: are wages set by “the market” or are they set by “marginal productivity.” There is no doubt that with sufficient military power i could cut wages to survival or below and argue that it was MY management (and machines) that created the wealth that the workers have no right to share in. But that will only work up to a point, unless your “historical standard” includes the Egyptian empire.
Simply put, your theory of wages leads to misery and death… ultimately for the boss as well as the workers. Though it sounds good to the bosses while it lasts.
As for “fire them and buy manchines…”
that might be okay for one industry where it makes sense to move from mules to tractors. but when you try to apply it to an entire economy, you have to ask how are workers who are paid only what they are “worth” in comparison to a machine, or simply laid off entirely.. how are those workers going to buy all the products that keeps you and your fellow capitalists making money?
greed kills.
the average wage increase from 1960 inclusive to 1979 inclusive is 1.2%
if 1980 (not a Reagan year) is dropped out of the picture, the average wage increase from 1981 (inclusive) to 2000 (inclusive is 1.4%
and the average wage increase from 2001 inclusive to 2015 inclusive is 0.5
i’m not trying to cherry pick here, but only make the point that recent years have been worse than “historical standard”.
Warren made a point to Bruce about the commutativity of multiplication. Yes multiplication is commutative: 1*2*3*4*5 is the same as 5*4*3*2*1. but 1*2*3 is NOT the same as 3*4*5 which is the mistake I think Warren makes in counting the years since 2000 as part of the “historical” standard. It might be his, but I am a lot older than that.
so it matters what “historical standard” you want to look at.
I would regard 1980 as an outlier not likely to be repeated unless Paul Volker comes back. and I hope the Predator Banks are controlled better in future, so I don’t feel too bad about saying 1.2 is low by “historical standards.”
and no, i don’t think the low real wage differential since 2000 has a damn thing to do with the productivity of workers. it was a failure of capital, but i have heard the capitalists managed to make even more money while the workers were making less. no doubt some new discovery in “efficiency.”
@Coberly
“I’m not much interested in metaphysics. On my check it says “gross earnings” and then it says FICA deduction 6.2%”
I am not sure what “New York Economists” that you are talking about. CBO says that most economists agree that the employee pays for the employer share of payroll taxes in the form of lower wages. I can tell you that the economic returns of SSA and Urban Institute are based on it. This isn’t metaphysics. It is introductory economics.
We can agree that you don’t agree with most economists, New York or otherwise. Your presentation is simply misleading when you say that the employer half is paid by Santa Claus.
Joe
you, the economists and CBO are wrong.
nine new york economists was my idea of a joke, but i am old enough to remember the tv commercial where the voice intones “nine new york doctors recommend…blah blah .” in other words a phony pitch that depends on the viewer thinking nine = nine out of ten.
in the case of economists, what they think is metaphysics… that is the quality of things not seen.
here is how wages are set:
say i am the capitalists and i hire a hundred workers to make a product i can sell for ten dollars each. it costs one dollar each, not counting wages and profits, to make each unit of product. it takes each worker one hour to make each unit of product. so i have nine dollars to share for each worker hour between wages and profits.
if i can’t get labor cheaper than eight dollars per hour, i will only make one dollar profit for each worker per hour… that’s a hundred dollars per hour for me.
now, i find a machine that can make ten units of product per hour, at a cost of one dollar and ten cents (including the cost of the machine) per unit. now each worker is making ten units per hour that i can sell for a total of one hundred dollars less the 11 dollars it costs, not counting wages and profits. if i can still get labor for 8 dollars per hour, now i can make a profit of one hundred dollars minus 11 dollars cost and minus 8 dollars wages. That’s 81 dollars profit per worker per hour, or 8100 dollars per hour profit for me..
now the question is will the workers find a way to refuse to work for less than ten dollars per hour? leaving me with 20 dollars less profit or only 8080 dollars per hour. or will i lay off ninety workers since i can only sell 100 units per hour of work, leaving me able to cut wages to 5 dollars an hour (because of the surplus of labor), so i now make ten units per hour at $10 price less $1.10 costs less $5 wages= $3.90 profit per worker per hour times ten workers = 39 dollars per hour for me.
or somewhere in between…. until of course the changes in the economy (supply and demand) force other choices and changes.
I think its a bit stupid of economists and others to think there is some linear relationship between “costs” and “wages.” what happens is there is some margin between costs and price per unit that must be distributed between the workers and the boss. how it is distributed is a matter of power, not “economics.”
low wage workers who have no union have no power. unions have power. so do people with rare skills. and so do bosses.
as a matter of law, the employer pays 6.2% for FICA and the employee pays 6.2%. it is a matter of metaphysics to claim that the boss’s share is “really” the employees money.
at the end of the day it becomes the employees money, but only because the government forces the employer to pay it.
introductory economics is metaphysics. it’s like the church. if they get you young and stupid enough they can make you believe anything.
or to put it another way… the FICA changed the supply – demand price of labor. by putting it’s thumb on the scale, the government forced the employer to give the employee a wage increase, not only equal to the “employer’s share,” but in fact equal to both shares… because the employee now has to bargain for a wage that leaves him after the tax as much income as he needed before the tax to buy groceries and not much else at that income level.
the bosses know this. it’s doubtful that nine new york economists know it.
and by the way, have you noticed how much wages AND profits have gone up since Social Security was enacted? maybe there’s a reason for that (people spending a little more, and even investing a little more because they are not so afraid of being destitute when they can’t work, or find a job, when they get old.
but hang on to those one liner “theories” you live by.
even the economists know they are not true. but enough of them get paid enough to repeat them in public as if they were god’s laws that they can bring them out like cannon and win elections with them. or at least get ignorant businessmen to feel good about what they do.
“[I] don’t think the low real wage differential since 2000 has a damn thing to do with the productivity of workers.”
Of course it doesn’t. The average workers are generally not responsible for any increase in their productivity, so an increase in the productivity of the average laborer will not be reflected in his income.
“[Low] wage workers who have no union have no power.”
Correct.
“[Unions] have power.”
Incorrect. They HAD power. To a great extent, they squandered it, and so are now being priced out of the market.
“[So] do people with rare skills.”
Correct.
“[And] so do bosses.”
Correct.
That last point is key. WHY do bosses have power, while unskilled laborers do not? Because there is a surplus of unskilled labor. More come over our borders all the time, and work goes to countries awash in unskilled labor.
Raise the Minimum Wage? Empower unions to demand higher wages? Unscrupulous employers will just hire more illegal workers, and scrupulous employers will build plants overseas or go out of business.
If you can see a way out of that trap, I’d love to hear it. I can’t.
warren
i don’t think you would. you have a theory of everything, and those are hard to change.
the low wages of workers has nothing to do with “productivity.” productivity is measured in dollars. dollars are set by the market, or by those with market power. at any given time (so it’s not zero sum in the long run, but it is on any given day) there are so many dollars and so much goods and services people want. how that gets shared about is a complex business with multiple feedbacks. “supply and demand’ has something to do with it, but by no means everything.
people with power, whether government or private semi-corners on the market, determine a lot, or most, of how it gets shared. including by fraud on their customers. you aren’t going to sort it out with one liners.
unions did not, by and large, squander their power. the high dollar drove industry overseas leaving american workers with no power, even if unionized. actually any company that has the ability to relocate to a lower wage area has the power to break unions. and they did. they had help from the “pfree enterprise uber alles” politicians.
illegal workers are cheap because they are scared. stop treating them like criminals and they will be harder to exploit.
but that doesn’t mean i favor open borders. so that may be the trap you see.
but it’s not because workers demand wages that are too high. though it may be that non illegal workers have options that illegals don’t have.
you want to reduce american workers to the status of chinese, vietnamese, mexican, or salvadoran workers?
well, the people behind “pfree enterprise uber alles” are the same people who used to think they couldn’t get by without negro slavery.
the civil war only taught them that white is as good as black, and it’s cheaper to rent than to buy.
Another great Zinger from Coberly:
“it’s like the church. if they get you
young and stupid enough they can
make you believe anything.”
Less than 20 words, and Coberly insults Billions.
BK:
Certainly this is a defining rebuttal by you of the Northwest Plan and probably the best you can do today.
oh, dear,
i apologize to any religious people who think i meant to insult them. on the whole i think “the church” has been a force for good in the world.
i was thinking of the church of the inquisition and the pogroms and jihads and burnings of witches and saints. and all the mini-inquisitions and hate filled doctrine or just well intentioned people who cause misery and despair in their desire to do “god’s will.” but that is my no means all religious people, or even all of “the church.”
as for the economists: there are honest and intelligent economists in the world, some right here on Angry Bear. I was thinking of those economists and true believers who intone economics cliches and believe they have said something wise and profound. i was young and dumb enough myself to believe the doctrine of comparative advantage. the math was cute and enabled me to stop thinking about what happens in the name of “free trade” until i was forced to actually think and realized that cute math is at best only the beginning of thought, and one needs to look carefully at what is really going on before pronouncing eternal truths.
as for Krasting, i have never insulted him. i have tried to understand why he keeps combing to Angry Bear to insult me and say things that are not just ignorant, but shockingly stupid. when the doctor tells you you have cancer of the brain, he is not insulting you, he is making a diagnosis.
“coming” , not “combing.”
being old and stupid is not the same as being young and dumb.
although something like “beach combing” may describe sort of what krasting is doing…. “trolling.”
“[The] low wages of workers has nothing to do with ‘productivity.’”
We are in agreement there. Increases in productivity is not a result of the workers’ efforts, so they do not have a share in its rewards.
“[Illegal] workers are cheap because they are scared. [Stop] treating them like criminals and they will be harder to exploit.”
They ARE criminals. If we stopped treating thieves and rapists as criminals, we’d have more thieves and rapists, no? So would we not have more illegal immigrants undercutting legal workers if we stopped treating them as criminals?
“[But] that doesn’t mean [I] favor open borders.”
But you said you would not enforce our immigration laws.
“[It’s] not because workers demand wages that are too high.”
They are demanding a $15 per hour Minimum Wage. That is VERY high by international standards. Union jobs pay much more than similar jobs without unions. If unions did not demand pay and benefits above their competition (un-unionized workers here and abroad), then they would not lose jobs to their competition.
“[You] want to reduce [American] workers to the status of [Chinese], [Vietnamese], [Mexican], or [Salvadoran] workers?”
Not at all. I am only saying that I don’t see a way to prevent it.
Run – Wow! A good one. You really jumped to the defense of Coberly! A question – do you really think that Coberly’s insult about the “stupid people” who go to church was a good defense for the NW Plan?
And while we’re at it can you confirm that you prefer Coberly’s single solution, tax the workers approach? You like the idea that the workers get to see their taxes go up every year for the next 25 years?
You don’t want to see some fairness? No increase in the Cap? No revenue from new sources like a transaction tax? You want it all to fall on the back of the workers?
I have read what you write. I don’t believe you want these things. You would like to see an outcome that does not make the rich richer. You want to expand SS. You want the 1% to contribute their fair share. But those outcomes are the exact opposite of the NW plan.
I look forward to your response.
bk
bk:
To your first paragraph. I never said it “was a defense,” you did. You were using this as an opportunity to deflect. For me, God was a bullet and where I stood any particular second could be my life or not.
To your second paragraph. Yes I do think it is a better solutions than yours, Petersons, etc. Productivity will increase income far faster for Labor than that increase unless it is skewed mostly to Capital. But then you are heavily into Capital, are you not?
To your third paragraph; only pigs and horses are at a fair. Life is not fair. SS is theirs as coberly says and this has far better reasoning then your position.
To your 4th paragraph, “you do not believe” is key. The wealthy in income should pay more in taxes but it should be in income tax as then it can not be argued about paying it back as it is now while drawing down the TF. That is contributing their fair share which has been the larger issue since the boy-George 2001/2003 tax breaks.
“You don’t want to see some fairness? No increase in the Cap? No revenue from new sources like a transaction tax? You want it all to fall on the back of the workers?”
The point is not to turn OASI into more of a welfare program than it already is.
And please tell me, how is it FAIR that the lowest level contributions get a return FIVE TIMES greater than those contributions near the cap? Would not a FAIR system treat all contributions equally?
Warren:
Yes it is fair to your first question and no to your second question.
Warren the “effective interest” for low lifetime earners is about 10% (real) and the effective interest for high lifetime earners is about 2% (real). that’s not the same as low wage workers getting five times as much as high wage workers. in fact the low wage workers only get in general about a fourth as much as the high wage workers. but that is fair, because the high wage workers paid… i’ll skip the percents because they can be confusing and misleading… the high wage workers paid no more than the low wage workers, and they get a higher absolute return
but a lower percent of what they paid in. and that’s fair because Social Security is insurance not an investment plan. the high wage workers, in theory, pay for the insurance in case they have some kind of bad luck that turns them into lifetime low wage workers.
it is extremely fair, but people who don’t want to see it, can’t.
Can you provide the source of information on which you think high wage earners are making 2%? Let’s make sure that the numbers factor in the possibility of getting zero, and the possibility that your return is reduced by say a 1/3rd from taxation of benefits, and the possibility that your return is reduce 21% based on insolvency.
2% you are kidding.
Krasting
i doubt if anyone pays as much attention to your comments as i do. So they will not know how many times your claims have been answered, often at great pains to myself, and so not perhaps understand why i have had to decide you are more stupid than misinformed.
short answers for the benefit of new readers, if any:
SS is not a tax, but a way for workers to save (and insure) for their own retirement, or disability, or death with dependents. It is paid for by the workers themselves. It only resembles a tax because it is an involuntary payment of money to the government. But the government does not keep the money: it gives it back to the worker three times over thanks to the automatic “interest” generated by pay as you go financing in a growing economy.
Raising the cap or finding new tax sources will turn SS into welfare which the rich will own and cut to the bone. Causing misery and loss of self-respect to the workers who qualify for the “welfare,” and a lifetime of anxiety for workers afraid they will have nothing but “welfare” to look forward to when they are too old to work.
under the NW plan the workers “tax” (savings) would go up one tenth of one percent per year. that’s a dollar a week per year while their wages will go up about ten dollars per week per year. and they will get that dollar per week back when they retire (or get disabled, or die with dependents). so nothing is being take away from the workers. they are just being required (because “voluntary” savings has never worked) to save that little extra that it will take so they will have “enough” when they can no longer work.
I did not insult the “stupid people who go to church.” I did make a reference to how “the church” creates true believers. i also pointed out that i was young and dumb myself when i was young and dumb.
i apologized to people “people who go to church.” mostly they are good and decent people. but the history of “the church” tells us about what “the church” has done to make good people do bad things .
i do not apologize to “economists” other than the honest and intelligent economists who are not “the economists” i meant who give people too young and dumb to know the difference patent one-liner answers to complex problems, which those people go on to repeat — as though from god — for the rest of their lives without ever thinking about the complex problems.
Warren
i won’t reply to your comment re thieves and criminals. I am tired and no good would come from my attempt to make a distinction between thieves and rapists as against “illegal” immigrants.
and while i do not favor “open borders,” i think we could treat the people who do come here illegally a good deal less harshly than we treat thieves and rapists.
nor do i think poor downtrodden business owners are forced to hire illegals because of the excessive demands of american labor.
paying a living wage would drive up the cost of some goods and services. perhaps people would demand less of those services, or demand less of other services that they had less need for.
i do not think the overall economy would suffer, because the people now getting the living wage would have more buying power and make up for the difference in the reduced buying power of others.
i don’t think getting a hamburger for ten cents less is worth seeing people working for slave wages.
for god’s sake Warren, you are smarter than Krasting… try thinking these things all the way through and not stopping at the first “universal law of economics” you come up against.
Joe
the computations are complex and leave a lot of room for honest folk who rely on “averages” and lazy arithmetic, and less honest folk who use distortions like calling a return less than PV a “loss.”
I wrote and AB piece on this some years ago, and i may write another one… or may not. getting too old to spend my life answering people who dont want to know.
you could start by looking at the table in the Trustees Report that gives the “return” to a selected set of earners. but you have to remember that the return is based on an income (and therefore tax) that is already adjusted for inflation plus the growth in the economy.
my own calculations were done by brute force and looked at wages, payroll tax, and benefits to low wage, medium wage, high wage, and “cap” wage, earners with and without spousal benefits and with and without calling the employers share “really” the employees money.
but i did not look at tax ON benefits, and i did not consider possible future cuts in benefits or increases in the cap.
i did look at the effect of the gradual tax increase that i recommend.
i am very sure of my results, but i don’t have the sort of mind that considers “are you kidding?” an argument.
there was a former “high earner” in my town who lived on Social Security.
his business had failed late in life because his service became obsolete.
it took most of his savings. but a small investment in the nineties brought him a high rate of return. and his mind couldn’t let go go the thought , “if only.” if only he had invested all of his social security taxes in that high return stock he wouldn’t have to be living on the “charity” of SS.
it never occurred to him that without his SS “tax” he would have invested all of his money in his losing business.
so here is a guy saved from living out of a dumpster by a “tax” he was forced to pay, living in the land of “if only.”
“[The] ‘effective interest’ for low lifetime earners is about 10% (real) and the effective interest for high lifetime earners is about 2% (real). that’s not the same as low wage workers getting five times as much as high wage workers.”
I am not talking about effective interest, which, by definition, is computed on ALL contributions. I am talking about the formula for computing benefits, which multiplies the portion below the first “bend point” by 0.90, and the portion above the highest “bend point” by 0.15. Thus, the least contribution is valued five times more than is the top.
https://www.ssa.gov/oact/progdata/retirebenefit2.html
Regarding the comparison of thieves and rapists to illegal immigrants, the point was only to illustrate that tolerating crime encourages more of it, no matter what the crime is.
“[I do not] think poor downtrodden business owners are forced to hire illegals because of the excessive demands of american labor.”
Indeed not, but I do know businesses that have gone out of business because their competitors hired illegal workers for less than legal workers could be paid.
“[Paying] a living wage would drive up the cost of some goods and services. [Perhaps] people would demand less of those services, or demand less of other services that they had less need for.”
Or they would buy from Chinese, South American, or African manufacturers. If the prices go up, would not what you consider a “living wage” also go up?
“[Try] thinking these things all the way through and not stopping at the first ‘universal law of economics’ you come up against.”
I submit that YOU are not thinking things all the way through. How do we raise wages here without having China, India, Mexico, et al., producing and selling the same things at lower cost?
If we raise the Minimum Wage to $15 an hour, and McDonald’s pays it while Burger King buys machines to do the work, and McDonald’s charges $5 for a Big Mac while Burger King charges $3.50 for a Whopper, don’t you think people will start to go to Burger King more than to McDonald’s?
If a pair of cotton socks made in America costs $5, and a pair made elsewhere cost $2, most people will buy the $2 socks, and the American manufacturer will go out of business.
Smart or not, I do not see a way out of that trap.
“[Here] is a guy saved from living out of a dumpster by a ‘tax’ he was forced to pay, living in the land of ‘if only.’”
Where are his children and grandchildren?
“Can you provide the source of information on which you think high wage earners are making 2%?”
I cannot, but I can direct you to a study the SSA published a study back in 2004 (Social Security Bulletin, Vol. 65, No. 1, 2003/2004). I have not found anything more recent. See Table 6:
https://www.ssa.gov/policy/docs/ssb/v65n1/v65n1p33.html
@Joe the Troll
@warren – google ‘return on social security’ returns
https://www.ssa.gov/oact/NOTES/ran5/an2004-5.html
Number 2004.5 March 2005
Internal Real Rates of Return under the OASDI Program
for Hypothetical Workers
by Orlo Nichols, Michael Clingman, and Alice Wade
Joe,
Just think of the tax on benefits as “means testing” and you should be fine with it, right?! Isn’t that one of the fixes you always want to implement/impose. But think of it as easy means-testing, no need to go take the drug test, or file annually with the SSA to get the check next year, or even to update the set of faceless bureaucrats that send a check every month with the financial data throughout the year if your circumstances change… Once a year – around April 15 you file to different faceless … and if it turns out you don’t need the $$$ as much as the program thought you might, you can contribute more money to other things your government buys.
Rates of return… around 2% if high income, married, one earner. Or not both high earners.
Also, remember that you’ve had a lifetime of insurance that was included, but most likely, not used during your working lifetime. You might want to price that insurance as well. Most BS artists talking about returns don’t factor it in at all. (E.g. Paul Ryan, who did actually benefit from survivor’s benefits.)
Thanks, Grumpy. That’s better than what I found, which compares to a hypothetical investment, which just confuses the matter.
One thing to note is that “the rates in this note do not reflect any differences in mortality by earnings level” (footnote 7), so those at the low end will see lower IRR than these hypothetical earners do, and those at the high end will see higher IRR.
Grumpy
thanks.
the article Warren links has too many finagle factors for me to take serious. you might want to look out for the PV comparisons which tends to mean that if you don’t earn as much from SS as you “would have” from a magic bank that pays the (arbitrary) interest rate without fail and no risks then they count that as “losing money.”
there are no such banks. and if there were, poor people would not put their money in them.
the second watch out is that the study says that poor people get a bad deal on SS because they die younger than rich people. this of course is not something that rich people like to say, but the fact is that dying younger is one of the “chances” you take… just like the chance of living longer than your money lasts. SS protects your from the last risk and the cost of not finding a way to pay you money after you are dead.
these people are not interested in Social Security (insurance). they are interested in squeezing the last possible penny out of what they “might” earn from riskier investments.
warren
you seem to have trouble making the distinction between “treating them like criminals” and “treating them like rapists and robbers.”
you also don’t seem to like the idea of an actual living wage.
i am sure when they can build a machine to say “supersize that?” mcD will fire all it’s minimum wage workers.
it’s a little hard for me to imagine “businessmen” keeping workers they don’t need out of the kindness of their hearts. or returning the “employer’s share” of FICA to the workers if the government stops taxing them.
it is no fund arguing with people who have a mindset that is both inflexible and essentially cruel… though well protected with rationalizations. after all, we know that slaves are better off than they would be if set free.
Coberly, you seem to miss the point that people working illegally ARE criminals. Perhaps a comparison to non-violent criminals such as pick-pockets and cigarette smugglers might more more palatable, but it does not change the fact that when crime is ignored you get more of it.
What is a “living wage”? Why should that be the minimum?
Many places have already fired many people who cannot do what the machines do. That is the primary driver of productivity gains. Since 1980, U.S. industrial output has doubled, but the percentage of people employed in the manufacturing sector has dropped from 25% to 20%.
The thing is, you and I generally agree that we have a problem. I don’t dislike the idea of a “living wage” (whatever that is). I simply do not see how that goal can be achieved.
Do you?
Warren
i’m willing to give a higher minimum wage a chance to see how it works out.
And I’d get rid of the illegals by making them legal so you wouldn’t have to treat them like criminals.
(and I have been against open borders since your ancestors crossed the Rhine in 406)
If they were legal they would not work for the low, low wages that “compete” with american workers.
If you want to treat someone like criminals, treat the bosses who illegally hire illegal immigrants and compete unfairly with businesses that pay a living wage.
we have adjusted to machines before, and we have adjusted to immigrants before (remember the Know Nothings?)
i would charge a tariff on good imported from countries that use exploited labor. i would look at “strong dollar” policies that force business to go overseas to be competitive .
then i would go after the criminal banks and other malefactors of great wealth. a few millionaires going to jail should deter other millionaires from defrauding customers and abusing workers, don’t you think?
oh, yeah, a living wage should reduce crime in the inner cities where now the only way to make a living is to deal drugs.
of course, making the drugs legal would take the profit out of it, and reduce the “crime” rate.
“[I’m] willing to give a higher minimum wage a chance to see how it works out.”
That’s nice. How did that work out in 2007? The Minimum Wage was increased 13.6% on July 24th, 2007. Black employment fell the very next month. Coincidence?
“I’d get rid of the illegals by making them legal so you wouldn’t have to treat them like criminals.”
So when the next batch comes in to replace them, you make them legal, too?
“[Treat] the bosses who illegally hire illegal immigrants [like criminals].”
I’d love to. Anyone who hires an illegal immigrant should be put out of business.
“[I] would charge a tariff on [goods] imported from countries that use exploited labor.”
I agree. Tell me again why Clinton gave China “Most Favored Nation” status? http://tech.mit.edu/V114/N27/china.27w.html Campaign contributions?
“[A] living wage should reduce crime in the inner cities where now the only way to make a living is to deal drugs.”
Well, the Minimum Wage in the District of Columbia is now $9.50 per hour. The crime rate has not come down. Chicago’s is $10.05 per hour. How’s that reducing the crime rate there?
“[Making] the drugs legal would take the profit out of it, and reduce the ‘crime’ rate.”
I’m fine with that, too. Our “War on Drugs” has been almost as expensive and ineffective as our “War on Poverty”.
Joe the plumber Economist
Joe, here are some economists you should know before you buy the next Nine New York Economists Agree…
https://www.theguardian.com/commentisfree/2013/apr/26/rogoff-reinhart-remorse-reconsider-austerity
(if you don’t remember the whole story you weren’t paying attention)
Warren
the song goes on and on. and we are not getting anywhere. i don’t think you get out of the house much.
That’s not much of a counter-argument, Coberly.
Tell me, do you see any way to force companies to pay more without having them buy machines to do the work, hire illegal immigrants to do the work, send the work to low-wage countries, or go out of business?
If you do, please enlighten the rest of us.
my 1;45 above said high income workers pay no more than low income workers. it should have said high income workers pay IN more than low income. that’s why they get a higher benefit.
but their benefit is a lower RATE of return on what they paid in.
the reason for that is that SS is insurance.
if you buy fire insurance you pay the same price as the guy who eventually has the fire, but if you don’t have a fire then you get a lower rate of return than the guy who does. most people think it’s better not to have the fire.
except in the case of Social Security. people buy insurance and then whine because they didn’t end up poor in life and want to get back what they paid for the insurance.
it’s because the highly intelligent economists and journalists write about SS as if it were an investment, when they are not writing about it as if it were welfare.
even here where i have been at some pains… and repetitions to point out that SS is insurance, people still want to talk about the “rate of return” as if that was the point.
the rate of return is excellent compared to any other “investment” or “savings” that poor people are likely to get. and it is done while still returning the “tax” that the people pay who end up not needing he insurance, adjusted for inflation and, in general, the growth in the economy.
i can’t imagine a way to prevent poverty in old age, in an industrial democracy, with current American values, that would work any better. but because we have a democracy with current American values, there will always be people who lie about it because they can see an angle where they could make more money if it wasn’t there, or because they think it’s “socialism” whatever that means, or because they have just been fooled by the liars. and once most people have been fooled, they will remain fooled if they possibly can because it hurts to much to think you have been fooled.
warren
i’m tired now. which must have been your purpose. take a bow.
“[High] income workers pay IN more than low income. [That’s] why they get a higher benefit.”
Yes, but that higher benefit is not proportional to what they pay in. Any real insurance would be. If you want $1M of life insurance, it will cost you twice as much as $500k of insurance will. They will not charge you five times more for the last $100k of insurance than they do for the first $100k.
“[The] rate of return [on FICA taxes] is excellent compared to any other ‘investment’ or ‘savings’ that poor people are likely to get.”
Because they are not likely to get any investment at all. In fact, lots of not-so-poor people don’t have squat in investments, but take a vacation every year and buy a new car every two. And a lot of poor people spend more on cigarettes than on FICA taxes.
warren
yes, as to the last. that’s why SS cannot be voluntary even though it is a good deal.
as to the first, you cannot really imagine there is only one way to design an insurance system. you design it so that it works. and try to remember that the high income people don’t know (for sure) that they ARE going to be high income. so the deal is “pay 12% of your income” and if you are low income you pay less. if you are high income, congratulations you did not have the fire. your 12% is what it takes to pay the insurance benefits to those who had the fire.
instead of thinking of it as the high income gets a low return for his insurance premium, think of it as the low income gets a high return for his insurance… the way it’s supposed to work….
really, try to think about this. you are just maundering in cliches. not thinking at all.
“that’s why SS cannot be voluntary…”
Right. We provide 401(k) plans and IRA’s and Roth IRA’s to encourage saving for retirement, and who takes greatest advantage of them? Those who would save for their retirement anyway. They are wealthier because they make better decisions.
“… even though it is a good deal.”
It’s not a “deal” at all if it is not voluntary.
“[If] you are low income you pay less. [If] you are high income, congratulations you did not have the fire. [Your] 12% is what it takes to pay the insurance benefits to those who had the fire.”
And that is what makes it a welfare program. (If the multiplier were constant end-to-end, it would not be.) The closest commercial comparison would be a Universal Life Policy, which converts the accumulated cash value into an inflation-indexed annuity at retirement. I doubt any such plan exists which treats your treats your first dollar five times better than your last. That might not even be legal. (Certainly no company could construct such a pension system.)
You and I agree on the necessity of increasing the FICA tax to keep Social Security solvent, and I like you plan for doing so.
Where we really disagree is that I do not see that the U.S. government has any Constitutional authority or moral authority to protect people from their own stupidity.
warren
you always fetch up with these simple minded one liners.
i used to help design highways for a living. believe me the government works very hard to protect people from their own stupidity.
thing is stupidity is the human condition. affects you and me. not only do we protect people from their own stupidity, we protect ourselves from their stupidity (not, of course, our own.). by saving “the stupid” from poverty we save ourselves from poverty. how well do you think business will do when the people are poor or anxious about ending up poor.”
and it wasn’t “their own” stupidity that caused the Great Depression of the last Great Recession.
stop telling yourself fairy tales and try to figure out how you’d run a country. if your answer is “laissez faire” the lions would eat you in two days.
really, just try to be a grown up and think about the real problem and stop satisfying yourself with two-year old (okay, fourteen year old) simple minded “me, me, me” and Ayn Rand first raters.
i’m not trying to insult you. i’m trying to wake you up.
“[It] wasn’t ‘their own’ stupidity that caused the Great Depression of the last Great Recession.”
It WAS the stupidity of the governments THEY elected. The people elected those congresses, which put into place the policies they were elected to put in place, and the economy collapsed as a result.
“[If] your answer is “laissez faire” the lions would eat you in two days.”
Ah, but it IS the government’s job to protect us from others.
“[Just] try to be a grown up and think about the real problem….”
The real problem is that people do not think long-term and do not have a long-term financial plan that they stick to.
Warren
i don’t like “government” any more than you do. But people are always going to get together to protect themselves from the dangers of the world… including other people who get together. That getting together is called “government.” You have no choice about that. You will have either good government or bad government, but you will never have no-government. And the people telling you they want “smaller” government are telling you that so they can take over being the real government and they are predators too big to fail.
Jefferson did not like big government and he thought the Louisiana Purchase was unconstitutional. He bought it anyway. Thing is, when you are a grownup you have to deal with the world as it is, not the way you think you would like it to be.
If you are capable of thinking at all, think about that hard.
Second: if you think that “The real problem is that people do not think long-term and do not have a long-term financial plan that they stick to.” write a post for AB making your case. I wouldn’t offer it as an alternative to Social Security, though if you are right it could become one. I think I’d make the case that it is the smart thing, and then show in detail how they can do it. Don’t rely on “if they were smart.” They are not smart so you are going to have to sell it to them… but you need to make the case that it will work. Expect disagreement.
But if you are going to spend your life believing this, at least do some hard thinking. A good way to do that is to try to make a case that other people will disagree with, and listen to the disagreements.
I tell you frankly that you have made a good start in understanding Social Security, but then you come up against a kind of religious faith you have in the way things ought to be and it stops your thinking right in its tracks.
good luck.
“Jefferson did not like big government and he thought the Louisiana Purchase was unconstitutional. He bought it anyway.”
A good Scotsman!
So based on his example you would just ignore the Constitution when it does not allow the U.S. government to do what you want it to?
no. but you’ll notice that he wasn’t impeached. and no one objected execpt a few trolls like you.
i can see why you’ll never be president.
and this is just too tedious to continue.
The Senate DID ratify the treaty. Can’t really expect an impeachment for something the Senate ratifies.
my point exactly.
the Constitution is a pretty good start. but NO one can say “what it means.” (except the Supreme Court for what that’s worth).
in theory we can “change” the constitution by amending it. but that’s a lot of trouble to go to every time someone thinks what they want IS constitutional and someone else thinks it isn’t.
if it’s important you have a big fight about it, in public, in the press, in congress, and in the supreme court. and if you don’t like that you try to elect a president who will appoint justices who agree with you.
but you are not going to always win. and meanwhile life goes on, and the law is what the local sheriff is willing to enforce, and the rest of the government (including us) is willing to put up with.
so, sorry, what you think the Constitution says (means) doesn’t really mean anything until you can convince enough of the right people to agree with you.
now, if God told you what it means and wants you to change everyone else’s minds, you’ve got your work cut out for you.
but someday maybe some president, maybe one you elected, may take you aside and say, look, Warren, give us a break, we got a country to run here and unless a whole lot more people than you object really hard, we are going to do what works. and of course that means caring about what most of the right people think is Constitional enough.
of course you could stamp your feet and turn blue.
i’m not suggesting you give up your beliefs, but if you think you have the Word of God on the subject… well, gee, maybe…there is lots worse going on in this country that I think is unconstitutional as well as immoral… evil… far worse that rich people getting only 1% return on their SS “investment”
except it’s not an investment. it’s insurance. and you still don’t seem to understand that those who have the fire get a higher return on their insurance than those who don’t. that’s the whole point.
“The real problem is that people do not think long-term and do not have a long-term financial plan that they stick to.’
Do you object to having a government program that helps people who do not plan well, or do you just want us to understand that such a program is “welfare”?
Arne
i should let you have at him, but just in case:
i don’t think cashing an insurance check is the same thing as cashing a welfare check.
many of those who think they plan well and expect to be high income have things happen to them that they do not expect and they end up lower income. so they need(ed) the insurance.
those poor who “do not plan well” are sometimes planning the best they can, but retirement is a long way off and the kids need shoes today. fortunately for them SS premiums are low enough (as a percent of wages) that they can find a way to manage without the 6% that FICA is putting into their savings, savings with the peculiar insurance that if at the end of your career they are not enough to retire on, the insurance kicks in and you will get enough to sleep indoors and eat store bought groceries.
and of course society, us, needs to protect itself even from those poor who get that way by their own fault. because SS requires them to save, they can’t “forget” to save, or put it all down on a horse that can’t lose. that way we don’t have to give them real welfare (they didn’t pay for it) when they get old and have no money, or watch them starve in the street, or try to run an economy where half the old are starving and half the young are so afraid they will starve in old age that they are afraid to spend or invest.
i don’t think warren really understands any of this. i have invited him to provide details of how his “planning and prudence” will work in the real world. the one where people lose their jobs through no fault of their own, or get paid wages too low to save for retirement or medical care…
but you have heard all this before.
If their wages are too low to save for retirement, how can they afford to pay the FICA taxes?
FICA taxes are only 6% of their low wages, see, and if their wages stay low, when they retire, the boss’s share plus the 12% FICA of high wage workers whose bosses share is “really” thier money will contribute to the low wage workers benefits… which he could not have saved for himself as his low wages. that last bit is an “insurance transfer” just like those people who don’t have the fire pay for those people who do.
and even at that SS manages to pay the high wage workers back as much as the paid in plus inflation plus about 1 or 2 percent real “interest” depending on just how high wage they are.
you could have answered this yourself if you had been reading what i already wrote instead of thinking up one liner objections. thinking one liner at a time never gets anyone anywhere.
So have some of that money put into private accounts, and IF those private accounts don’t come up to a minimum (at which point an annuity is purchased), then the government supplies the balance.
But really, almost anyone can save 10% of his income. How do I know this, because for almost every person in this country, there is someone who is living on 10% less than he is. However, they CHOOSE not to. They choose to buy cigarettes, or booze, or a better car, or a vacation, or whatever.
But you ask if I have a plan which will work. I do. Donate 10% of your income to charity, and save 10% of your income, and invest it in index funds. Live with your children in your old age.
If everyone did that, you would not perceive a need for Social Security. There would be plenty of charity money in the case of calamity.
Where you and I really differ is that you think it is the government’s job to protect people from themselves, and I do not.
One cannot counter the illogical argument of the Helvering decision, because such just ignore any logical arguments. So Social Security, as flawed as it is, is here to stay. People will continue to not save for their retirement, adult children will continue to leave their parents to live alone, and retirees will continue to pretend they are independent when they are dependent on the government.
So it comes down to how to maintain the solvency of the program, and on that we agree.
@Grumpy, before you call people trolls, idiots, and the rest you really ought to read the research you are citing.
https://www.ssa.gov/oact/NOTES/ran5/an2004-5.html That is from 2004 which is roughly 20 trillion dollars of solvency ago. The Present Law is useless because it either overstates returns or understates cost. So the report is out of date and useless.
It is a matter of common sense that it is wrong. Social Security is functionally a pay-as-you-go system. It is not possible to have people “make-money” in that scenario. You can’t have an in total profit in nominal terms much less real. Someone has to lose the dollar that someone else makes.
The report has bugs. First, it does not acknowledge your probability of getting zero dollars back. This report is like looking at rates of returns on auto insurance for only those people who have wrecks. It tells you that it does not factor in the taxes which now affect 70 percent of returns filed with benefits. Btw, you get better than 2% real in that situation.
Urban Institute has data on the economic returns from 2015. SSA’s moneys-worth studies are current for 2013. Nothing changes the fact that a pay-as-you-go system can reallocate money. It can’t create it.
The irony of most your posts here is that the writer’s are criticizing the SSA’s economists who say that the employer’s share of payroll taxes comes from wages, and then quote the SSA like they are an infallible God.
@Warren,
I agree with a number of your comments, but not the last one.
First, there is no resources in Social Security to allocate to private accounts. Any resource diverted will need to be replaced by another tax. This doesn’t fix the problem. It is changing the pocket that pays.
Social Security is theoretically insurance not savings. One is an expense to manage the cost of risk. The other is an investment intended to profit from taking risk. They cannot be compared any more than a sprinter can be compared to a swimmer.
The problem that our country faces isn’t that we are living longer. The problem is that more of us are living average that is 80 or more. The problem is that SS’s relative importance rises rapidly with age. We talk about the statistics of those 65 and older, when the target audience is 80+.
If you think that the government shouldn’t require you to buy old-age insurance, why should it be able to force you to buy auto insurance?
Joe:
The risk assigned to special treasury bills akin to normal treasury bills is so minute as to be ridiculous to even bring it up. If they fail, we would have more issues than just SS special treasuries. What risk would you be associating to this? These are not loans made to companies which can go bankrupt and leave us holding the bag like Trump did.
There are two problems as I see them; The excess TF was loaned to the GF and Congress used it to cover other things such as lower taxes for corporations, lower taxes for a small percentage of people existing at the top of the pyramid, etc. Now that it has to be drawn down, the people benefiting the most do not want to pay it back in increased taxes. A problem of fewer people working has drawn down the revenue going into SS. Your citation of people living longer and not working is covered by productivity gains going into the future. Furthermore you have a larger cohort coming forth called millennials who are entering the workforce. Put people back to work in meaningful jobs and the drawn down will stop; but, I would rather see it drawn down and paid back.
You are blowing right wing Peterson/AEI Druckenmiller smoke and nonsense.
Warren do not even bother, why you are still here is beyond me. I would have stopped you a long time ago.
Warren
we agree about some other things too. but we have to live in the world we live in not the world we think we want to live in.
you sitll do not understand social security, so the fact that you “disagree” with it is irrelevant.
as far as i can tell without thinking about it very long, your “private accounts” and government supplied annuity if those accounts fall short … does the same thing SS does but in a fashion that would be hard to monitor and then be in fact welfare as we knew it.
not all of those poor squander their money on beer. that is a stupid sterotype that has been told and retold for two hundred years. the British blamed the Irish famine on Irish “laziness” and drunkenness… while the exported wheat from Irish lands that they had stolen from the Irish while the Irish were starving on tiny plots of land suited only for growing potatoes which were then destroyed by the blight. it’s an ugly ugly way of thinking.
many old people don’t have children, certainly not children who can support them during hard times. private charity has never been enough to care for the poor. with SS people put their own money into a fund that grows with the economy, and then collect their benefits based on what they put in, with the added protection that those who never made enough money to put in enough money to live on, get a boost from those who made more than enough. let go of the idea that this is theft from the rich. it’s insurance that “takes from those who did not have the fire” and gives to those who did. and because of the way SS is designed, even those who did not have the fire get their premiums back with enough “interest” to beat inflation and generally get one to two percent “real” return on their money. so what they are out” is what they “might have made” in private investments. what they get out of that lost opportunity is to live in a country without most old people starving in attics, and the same thing that people get out of insurance that never have the fire. what they loose is all that champagne they might have spent their “higher returns” on.
don’t be too sure your arguments are “logical.” logical is a treacherous word that usually means no more than “these are the free associations i like and usually mean i am ignoring something that is important.
warren
write up a detailed case for that investing plan you think will do a better job than SS. see if we can get AB to post it. expect disagreement. learn from it and try to make a better argument, or even learn why it won’t solve the real world problem.
Joe the plumber economist
I can’t be as kind to you as i try to be to warren, because your case is made up entirely of lies you love to believe and arguments that make no sense at all. and you have shown a complete inability to come to grips with the replies you do get.
run 75441
as Bruce Webb pointed out, under the Northwest plan, the Trust Fund would not be “drawn down” in dollars, but only as a percent of costs.
That means the principle already lent would never have to be paid back. What would be paid “back” is the interest on the principle. This may be something that the bad guys don’t want to pay… belonging to that class of people who never pays their bills if they can avoid it (that is bills the owe to people without the political clout to demand payment).
Of course if they want to avoid the interest payments , all they have to do is pay back the principle. SS could then invest that money in some place more reliable than the United States of America. Or it could do without a Trust Fund at all. That would require about an extra one percent in the “tax.” but a smaller reserve would probably be adequate as long as the “taxpayers” understood that a real emergency might require a temporary increase in the tax. That would not be the best way to do things, but it is an answer the people should have to think about before maundering like Joe about things they don’t understand…
coberly:
I understand your discussion points and what you intend to do with the NW Plan. I am just saying BS to Joe. Thanks for explaining though.
Run
i suspected you might have heard it before. i was just explaining it again in case anyone new was listening.
I know and just explaining. Thanks!
@Joe
I did read the report, if only to identify what they were doing methodologically.
And yes, it *is* from 2004. Which is a while ago, so some of the numbers may not have held up.
And then your ‘critique’ goes off the rails – “$20Trillion dollars of solvency”. I guess you mean that the trust fund will be fully expended 7 years earlier than the projection in 2004, or something.
But the funny thing is, if you go back and compare the 2004 trustee’s report vs the 2016 report — the gap has gotten smaller as a percentage of GDP as well as percentage of payroll.
Golly… the economy did better than expected even with the Great Recession.
2004
Still another important way to look at Social Security’s future is to view its cost as a share of U.S. economic output. Figure II.D5 shows that Social Security’s cost as a percentage of GDP will grow from 4.3 percent in 2004 to 6.3 percent in 2030, and then gradually increase to 6.6 percent in 2078. Over the same period, the cost of Social Security expressed as a percentage of taxable payroll will grow from 11.07 percent to 19.29 percent.
2016
Under current projections, the annual cost of Social Security benefits expressed as a share of workers’ taxable earnings will grow from 14.1 percent in 2015 to roughly 16.6 percent in 2038, and will then decline slightly before slowly increasing after 2050. Costs display a slightly different pattern when expressed as a share of GDP. Program costs equaled 5.0 percent of GDP in 2015, and the Trustees project these costs will increase to 6.0 percent of GDP by 2035, decline to 5.9 percent of GDP by 2050, and thereafter rise slowly reaching 6.1 percent by 2090.
“Profit” — just think of SS as 1) mandatory, low level death/survivor insurance and disability insurance and 2) an investment in the growth of the US economy. Pay-as-you-go means that the money you put in comes out in 45 – 0 year later productivity growth compounded dollars. Americans get richer and your payment into social security reaps dividends down the road. That is the “profit”, a stream of payments at a later time. The profit comes from the change in the (demographically adjusted) wage base between when you are paying in and when you are getting paid out.
Yes, there are losers. People that die early. You die unmarried before you are eligible and file for benefits – you lost. And yes, high income earners are living longer (lots) and low income are living longer (just barely).
Grumpy
thanks.
couple of non significant details. the cost as a % of payroll is not the same as the “payroll tax.” some of those costs are paid by interest on the trust fund, resulting in a lower tax. and some of the cost is paid by taxes on SS benefits on people who otherwise have a good income in retirement: by keeping taxes a bit lower, these taxes later in a prosperous life actually reduce the “tax” paid earlier in life.
as for the 6% of GDP. imagine a country that can’t afford 6% of GDP to pay the housing and grocery bills of the elderly, especially when this money is paid by the workers themselves, either when they were younger, or by those who will later be older (hint to Joe: that’s two ways of saying the same thing..
and of course it’s money that would have to be spent out of GDP anyway to pay for the needs of the elderly even if there was no Social Security at all. unless we adopt a soylent green plan.
grumpy
regarding what they were doing methodologically. i haven’t had a chance to study it yet. at a glance they got slightly worse “return” than i calculated. but not so much worse that i think it makes a real difference to what i have been talking about.
“First, there is no resources in Social Security to allocate to private accounts. Any resource diverted will need to be replaced by another tax.”
True. Which completely destroys the argument that people are paying for their own retirement. If they really did, there would be enough money in the OASI Trust Fund to cover the needed outlay, even if we immediately started putting all future FICA taxes into private accounts.
“If you think that the government shouldn’t require you to buy old-age insurance, why should it be able to force you to buy auto insurance?”
Because if I hit someone else’s car, I should have the insurance to pay for the damage to their vehicle. You are NOT required to have insurance to cover damages to YOUR car. Driving is a privilege. Living is a right.
“[Not] all of those poor squander their money on beer.”
Of course. I know one poor person, fifty-nine years old, who makes over $120k per year, owns a 3000 sq. ft. house inside the DC beltway, and his net worth is less than $100k — including his house. High income poor. If a man worked at Minimum Wage all his life and invested 10% in an S&P 500 index fund, he’d have about four times that much. (And let’s face it — no-one stays at Minimum Wage his whole life.)
“[Many] old people don’t have children….”
Then what the heck were they spending their money on for the last forty years?
“… certainly not children who can support them during hard times.”
Oh, please. You get a pull-out couch and put them there. My (Catholic) friend of mine has six kids. His wife’s parents and her sister and sister’s son live with them. With the basement (where the oldest son sleeps), there are six bedrooms and maybe 2500 sq. feet. We’ve got a bunch of Asians living next door who have sub-divided the basement into bedrooms. The Palestinian dude down the street have 17 kids (three wives). Most are adults now, but that house was rocking a few years ago!
“[Private] charity has never been enough to care for the poor.”
Just proof that Americans don’t want it.
Widening life-expectancy disparities seem to track widening income inequality, just as stagnating life expectancy parallels wage stagnation. As inequality has grown in the US over the last 35 years, the highest 10 percent of earners at age 50 have seen impressive gains in life expectancy—8.7 years for men and 6.4 years for women—while those in the bottom third are essentially living no longer than they did a generation ago, according to a new study from the Brookings Institution.
“[High] income earners are living longer (lots) and low income are living longer (just barely).”
OK — wow. I went to look to contradictory evidence (because I had heard that low-income people are NOT living longer — even barely. I did find that you are right, they are (barely), but what I found in the process has quite stunned me.
A ways back, Coberly, you wrote, “In the real world your wages are going to go up about 1.2% per year.” I took that as reasonable, and did not bother to look further. But in my search I saw this Brookings Study:
http://www.brookings.edu/~/media/Research/Files/Reports/2016/01/life-expectancy-gaps-promise-social-security/BosworthBurtlessZhang_retirementinequalitylongevity_012815.pdf?la=en
Check out Figure B-7, way down on page 161. Low-wage workers born in 1950 saw their inflation-adjusted earnings PEAK at age 29. Pardon my language, but HOLY SHIT!! That is WAY worse than anything I had thought.
Warren – oh man…
“Living is a right” — so if it is a right, then there probably is a collective responsibility to make sure that it doesn’t end with retirement/inability to work. And SS is a very reasonably priced way to do that. And it doesn’t depend on “personal responsibility” (which often fails at every income level – Check Chipotle exec story today).
“Check out Figure B-7, way down on page 161. Low-wage workers born in 1950 saw their inflation-adjusted earnings PEAK at age 29. Pardon my language, but HOLY SHIT!! That is WAY worse than anything I had thought.” — Yep, right as sainted Ronald Reagan came in and blew the unions away, and implemented a new view on antitrust and ended minimum wage and change overtime rules, and… basically advanced the “let’s screw the workers and give more to the capital owners”.
“Low” means minimum wage, maybe only part of the year or part time.
You might try to experience/interact with those who aren’t in (I am guessing here, the top quintile of income). Talk to the person who cleans your office and works two jobs just to get by.
“[If] it is a right, then there probably is a collective responsibility to make sure that it doesn’t end with retirement/inability to work.”
No. Why?
Rights are what the government cannot take from you, not what the government must provide. We have the right to keep and bear arms. That does not mean the government has to buy you an M-16.
“‘Low’ means minimum wage, maybe only part of the year or part time.”
No, it does not. That’s what I thought, too. Go read it again. They are talking about the end-to-end Social Security records of those born in 1950 who came out of their working lives in the bottom fifth of those in the program.
Dan here…Iam shutting this thread down. Adding joe the troll is too much..Warren…please do not make stuff up.