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MAYA MACGUINEAS TALKS BACKWARDS ABOUT SOCIAL SECURITY

by Dale Coberly

MAYA MACGUINEAS COMMITTEE FOR A RESPONSIBLE FEDERAL BUDGET (CRFB) TALKS BACKWARDS ABOUT SOCIAL SECURITY IN THE NEW YORK TIMES…NOBODY THE WISER

Here is what she said:

“and “protecting” Social Security and Medicare, a reassuring political promise that removes over one-third of the budget from consideration.”

“trying to square the circle of balancing the budget while taking the largest contributors to spending growth — Social Security and Medicare — off the table”

“many Republicans — including, notably, Paul Ryan, the speaker of the House — have made the case for why we have to reform our largest entitlement programs, including Social Security and Medicare”

“Democrats, many of whom too often act as demagogues on entitlement reform,…”

Read the Op-Ed on the New York Times Website.

Here is the truth
:

Social Security does not add one dime to the debt or the deficit.

It is paid for entirely by the workers who will get the benefits.

When Social Security “taxes” bring in more money than currently needed to pay benefits, that money is kept in a Trust Fund, which like other trust funds uses the money to buy interest earning government bonds. Then when Social Security taxes bring in less money than needed to pay current benefits, it cashes the bonds.

Note that Social Security is NOT borrowing money; it is LENDING money TO the government, and when SS cashes its bonds it is NOT causing the government to spend money for Social Security. The government BORROWED that money FROM Social Security and spent it on other things, including tax cuts. Paying the money BACK to Social Security does not increase the Federal Debt. It reduces it. Or it would reduce if it the government didn’t get the money to pay BACK Social Security by borrowing it from someone else.

But by talking backwards the Committee for a Responsible Federal Budget (CRFB) hopes to fool you into thinking that Social Security CAUSES the debt.

Then, when it’s time for Congress to pay back the money it borrowed FROM Social Security, this payment shows up in their budget as an “expense,” and because all the expenses add up to more than all the income, the budget is in deficit, and the payment of Congress’ debt TO Social Security, like all the other expenses, is said to “contribute to the deficit.”

But it is talking backwards to describe paying BACK the money you borrowed as contributing to your deficit.

Normal people would not think much of you if you borrowed money from Paul and then told them that Paul was responsible for your debt. And if you paid Paul back by borrowing from Peter, normal people would not think you were being honest if you said that Paul increased your deficit.

Social Security does have an “actuarial deficit.” This has nothing to do with the “budget deficit” or the Federal debt. What it means is that some time in the future if nothing is changed, Social Security will not have enough money to pay for all the “scheduled” benefits. This is a problem that can be fixed by raising the payroll “tax.”

[I put “tax” in quotes to try to remind people this is not like an ordinary tax, because you get your money back, with interest, when you will need it more than you do today.]

The amount of the raise that will be needed is not large. Ultimately about 2% of your wages from you and another 2% from your employer. It would be better to phase this in at a rate of one tenth of one percent per year… about a dollar per week in today’s money. This is at the same time your wages will be going up over ten dollars per week per year.

Or you could wait to the last minute and raise your tax by 2%. This would not be a burden, because by then your income will be at least 20% higher than it is today. But you would feel it as a burden if it hit you all at once. It’s the difference between getting a raise of 200 dollars a week and getting a raise of 180 dollars a week. If you had never expected the 200 dollars, you would be happy to get the $180. Especially if you remembered that your were not “losing” that $20 but merely setting it aside to help pay for a longer retirement than you had expected.

Or you could raise your tax about one percent today (and another one percent from your boss). This would take care of the “actuarial deficit” for the next seventy five years. But the enemies of Social Security like to scream “this won’t do: we have to solve the problem once and for all!” Actually we don’t. The people in 2090 will be in a much better position than we are to decide if they want to raise their tax another one percent or decide to do something else.

Thing is, we do have to do something now. We have to at least think about it carefully so we won’t be fooled by the people talking backwards, or stampeded by the people screaming Social Security is broke, flat bust” and “a huge burden on the young.”

Remember: a dollar a week each year if you start this year or next. Ten dollars per week for the next 75 years if you start this year and want to let the people seventy five years from now worry about another ten dollars (in today’s money) when their income will be more than twice ours. Or you can do nothing and wait a little more than ten years and then raise your tax about twenty dollars per week all at once, which will fix the problem forever (including those people living out at the infinite horizon).

Or you can listen to Maya and panic and let Congress cut your benefits, or increase the age you will be allowed to retire, or turn Social Security into welfare as we knew it (which will lead very soon to cut benefits and increases in the retirement age for the poor, and nothing for you while you still pay the taxes) with all the fun of gong to the welfare office every quarter to prove you really need it. The Left wants to help turn Social Security into welfare, because they think they can “make the rich pay for it.” I don’t think the rich are going to go along with that.

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Capital Flows and Domestic Responses

by Joseph Joyce

Capital Flows and Domestic Responses

The international impact of financial shocks became apparent during the global financial crisis. But how do financial flows affect economic conditions during non-crisis times? And are there ways to shelter the domestic economy from these flows? Some new evidence from the IMF seeks to answer these questions.

IMF economists Bertrand Gruss, Malhar Nabar and Marcos Poplawski-Ribeiro, in a chapter in the IMF’s latest World Economic Outlook entitled “Roads Less Traveled: Growth in Emerging Markets and Developing Economies in a Complicated External Environment,” examine the impact of external conditions on growthsince the 1970s in over 80 emerging market and developing economies. This issue is particularly important in light of the contribution to global growth—80%—by these economies since the financial crisis.

The authors construct measures for the countries in their sample to capture the following external conditions: external demand, as measured by domestic absorption in a country’s trading partners; external finance, based on capital flows to peer economies; and the terms of trade, constructed from commodity prices. The cross-correlation across these measures is low, indicating that they capture different sources of external variation. The country-specific measures often diverge from their global values, which the authors attribute to domestic factors.

The three measures are all economically and statistically significant in explaining the growth rate of GDP per capita over five-year windows in the countries under stud , contributing almost 2 percentage points to income per capita growth over the 40-year period. Their collective impact rose from about 1.7 percentage points to 2.3 percentage points over the entire period. External financial conditions in particular have become increasingly important over time. Their contribution to growth increased by about half of a percentage point between the 1995-2004 and 2004-1014 periods, and represented half of the contribution from external factors since 2005. The authors attribute the rise in part to the increased financial integration of capital markets.

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Debts, Deficits and Social Security

Dan here…I noticed several articles in the NYT (here is one forcasting Trump/Mulvaneys’ Budget Proposal 2017, contrasting safety net program cuts with the Medicare/Social Security deficit busting programs. In an aside no less. Here we go again…as if deficit spending reduction was important to Republicans, and Social Security was one of the chief problems. I am reposting Bruce’s last piece on Budget and deficit from 2014. Also see this post Social Security: Cost, Solvency, Debt and TF Ratio.

by Bruce Webb

With the release of Tim Geithner’s new autobiography the old quarrel about whether Social Security does or even can add to “the deficit” has cropped up again. So rather than weigh in let me start from a more neutral spot. CBO produces a document called the Monthly Budget Review and in Nov 2013 it carried this title: Monthly Budget Review—Summary for Fiscal Year 2013 The introductory paragraph of the Summary of this Summary reads as follows:

The federal government incurred a budget deficit of $680 billion in fiscal year 2013, which was $409 billion less than the deficit in fiscal year 2012. The fiscal year that just ended marked the first since 2008 that the deficit was under $1 trillion. As a share of the nation’s gross domestic product (GDP), the deficit declined from 6.8 percent in 2012 to 4.1 percent in 2013. (The deficit was 1.1 percent of GDP in 2007, prior to the recent recession.)

and in turn was illustrated with the following graph: Fiscal Year TotalsFiscal Year 2013 outlays and revenues
Now in the normal course of reporting CBO gives figures for any number of ‘deficits’ including ‘on-budget deficit’, ‘off-budget deficit’, and ‘primary deficit’. But here they simply reference THE ‘deficit’ without qualification. So which of the three above adjectivally modified ‘deficits’ is CBO using in this Summary of its Summary of Fiscal Year 2013? Well none of them. Instead it is using a metric which by some measures no longer exists, at least under some readings of current law. Which has led to untold confusion. Confusion which I hope to unravel a bit under the fold.

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Tillerson Economics and the Saudi Arm Deal

ProGowthLiberal concludes ‘no net increase’ on Saudi Arabian arms deal:

The $109 billion in arms sales is for the next decade amounting to an additional $11 billion in new exports on a per annum basis. So we are talking about only 0.06% of GDP in new exports but this only gets worse if we take Tillerson at his word that as the Saudis spend more on their own defense, we spend less. In other words, exports rise by $11 billion per year and Federal purchases fall by $11 billion per year. Good news from a deficit hawk perspective but no net increase in U.S. aggregate demand. So Trump’s “jobs, jobs, jobs” amounts to nothing but his usual political posturing.

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Toward a Jobs Guarantee at the Center for American Progress (!)

(Dan here…hat tip NDd for this post.  Very long and well worth reading)

By Lambert Strether of Corrente\

Toward a Jobs Guarantee at the Center for American Progress (!)

I had another topic lined up today, but this (hat tip alert reader ChrisAtRU) is so remarkable — and so necessary to frame contextualize immediately — I thought I should bring it your attention, dear readers. The headline is “Toward a Marshall Plan for America,” the authors are a gaggle of CAP luminaries with Neera Tanden leading and Rey Teixeira trailing, and the “Marshall Plan” indeed includes something called a “Jobs Guarantee.” Of course, I trust Clinton operatives like Tanden, and Third Way types like Teixeira, about as far as I can throw a concert grand piano. Nevertheless, one sign of an idea whose time has come is that sleazy opportunists and has-beens try to get out in front of it to seize credit[1] and stay relevant. So, modified rapture.

In this brief post, I’m going to look at the political context that drove CAP — taking Tanden, Teixeira, and the gaggle as a proxy for CAP — to consider a Jobs Guarantee (JG), briefly describe the nature and purpose of a JG, and conclude with some thoughts on how Tanden, Teixeira would screw the JG up, like the good liberals they are.

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