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Social Security Trust Funds: Why Solvency = Discounted Interest Only Loan

by Bruce Webb

Are the Special Treasuries that make up the Social Security Trust Funds real? Absolutely, quite apart from legal and historical arguments the DI Trust Fund will be cashing in some $23 billion of them in 2010 along with taking some $9 billion [edit] in interest, their reality is affirmed every time a SS Disability check gets credited to a beneficiaries account each month. QED.

But does that mean that all of those Special Treasuries in the combined Trust Funds will get paid back? Or need to be paid back? Well no, if we fix Social Security in precisely the right way, those Trust Funds get converted into a discounted interest only loan, and the principal simply rolls over forever. To understand why this should be we can start with the following from Steve Goss, the Chief Actuary of Social Security in his recent article for the Social Security Bulletin The Future Financial Status of the Social Security Program

However, the occurrence of a negative cash flow, when tax revenue alone is insufficient to pay full scheduled benefits, does not necessarily mean that the trust funds are moving toward exhaustion. In fact, in a perfectly pay-as-you-go (PAYGO) financing approach, with the assets in the trust fund maintained consistently at the level of a “contingency reserve” targeted at one year’s cost for the program, the program might well be in a position of having negative cash flow on a permanent basis. This would occur when the interest rate on the trust fund assets is greater than the rate of growth in program cost. In this case, interest on the trust fund assets would be more than enough to grow the assets as fast as program cost, leaving some of the interest available to augment current tax revenue to meet current cost. Under the trustees’ current intermediate assumptions, the long-term average real interest rate is assumed at 2.9 percent, and real growth of OASDI program cost (growth in excess of price inflation) is projected to average about 1.6 percent from 2030 to 2080. Thus, if program modifications are made to maintain a consistent level of trust fund assets in the future, interest on those assets would generally augment current tax income in the payment of scheduled benefits.

Emphasis mine. I’ll unpack this a little under the fold.

The first thing needed to understand this is how the Trustees define Trust Fund solvency. For them ‘solvency’ means ‘one year of cost equivalent in the Trust Fund at the end of each year’. So if we take the OAS (Old Age/Survivors) Trust Fund in isolation from the DI Trust Fund we get the following projection Table IV.A1.—Operations of the OASI Trust Fund, Calendar Years 2005-19 we can see that OAS TF Balances not only vastly exceed OAS Cost for 2011, they also project to continue to do so for the next ten years. Which is why the Trustees are able to report that OAS in isolation meets the test for ‘Short Term Actuarial Balance’. And if you scrolled down the page from that link to Table IV.A3 you would see the same thing is true for combined OASDI. On the other hand if you paused at Table IV.A2 you would see that is decidedly not the case for the DI Trust Fund, it projects to go to a 91% of cost reserve at year end 2014 and to total exhaustion in 2018. Not only does DI fail the ten year test for solvency, it has for some years. So it needs to be fixed and as it turns out we know what the cost of that fix would be over 25 years and over 75 years thus handily achieving short term (10 year) and long term (75) actuarial balance, it would require an increase in FICA devoted to DI of 0.30%.

But that is not the focus of the post. Instead I want to explore how “a perfectly pay-as-you-go (PAYGO) financing approach” is consistent with “negative cash flow on a permanent basis”. Well Steve explains it but in somewhat condensed fashion. If the U.S. enters a period that experiences an extended period of real growth then Social Security costs increase every year. That is on a nominal dollar basis increases in population, real wage, and inflation, however moderate, add to total program costs. This may or may not also mean an increase in GDP devoted to Social Security which could remain flat, but the year end balances needed to maintain solvency need to be bigger year over year. The following table shows us income excluding interest and cost for the 75 year projection period Table VI.F9.—OASDI and HI Annual Income Excluding Interest, Cost, and Balance in Current Dollars, Calendar Years 2010-85 and tells us that projected cost under Intermediate Cost projections will increase from $710 billion in 2010 to $27 TRILLION in 2085. Meaning that for the combined Trust Funds to be judged solvent there would need to be an equivalent $27 trillion in Special Treasuries to offset that.

Well under Intermediate Cost assumptions that is not going to happen, even after we add interest back in. If we roll back to Table VI.F8.—Operations of the Combined OASI and DI Trust Funds, in Current Dollars, Calendar Years 2010-85 we see interest backfilling the gap and increasing TF balances up to 2027 or so, and then a more or less rapid collapse in balances due to Trust Fund redemption until the TF is exhausted in 2037, exposing SS to a 22-25% cost gap over the rest of the 75 year projection. Note that in this scenario the entirety of the combined Trust Fund principal has to be redeemed over a ten year period from 2027 to 2037 at an average rate of $400 billion a year plus the shrinking yet substantial interest charges. This is what the Wall Street boys really see as the crisis.

But if we look at Low Cost assumptions we see something totally different. Under LC Costs project to be $18 trillion in 2085 but all of that would be offset by $19 trillion of income EXCLUDING interest. This doesn’t mean the income tax payers get off totally scot free here, there is a period from 2026 to 2050 where a portion of interest accrued still has to be taken in cash, but not all of it, instead that retained portion of the interest simply transforms into Trust Fund principal and starts itself earning interest with the result that the Trust Fund balance goes to $119 trillion (Table F8) which equates to a TF Ratio of 1049, or ten times what is needed for solvency. Not only would this be unnecessary, it is actually problematic, and shows the perils of overfixing Social Security.

So where is the happy median? Well it is in what Steve Goss calls ‘sustainable solvency’ which is a Trust Fund with a flat to rising TF ratio at the end of the 75 year period. But what this means in practice is that instead of seeing the TF peak in dollar terms and then go to exhaustion or to have the balance go to ten times what is necessary it would instead need to grow steadily to match the $20 trillion or so in costs for 2085 suggested by that balanced outcome. Which logically means that Trust Fund principal is NEVER cashed in, just rolled over. Moreover and less intuitively it means that income excluding interest has to be maintained enough below cost to drain off enough accrued interest to keep the rest of that interest from exploding the year end balance. Which is how “a perfectly pay-as-you-go (PAYGO) financing approach” = “negative cash flow on a permanent basis”

So while the answer to the question are the Special Treasuries in the Trust Fund real obligations of the US Treasury, the answer is ‘absolutely’, shown not just with the current state of DI which is cashing them in as I type, but also because a steady-state Pay-Go requires at least some of the interest accruing to be paid in cash. But not all, a portion of that interest has to be retained and converted to principal to maintain a steady TF Ratio and so sustainable solvency.

Is the principal on what is in effect an interest only loan really a debt to Treasury or the Public it represents? Well that is more a question of language than anything, but the simple fact remains that small changes in revenue today while creating a permanent obligation in the form of cash interest transfers almost totally removes any need to redeem the principal in the Trust Fund over the next 75 years. For example if you examine the spreadsheet underpinning the NW Plan for a Real Social Security Fix: 2009 OASDI Trigger you will see the Trust Fund balance hitting its first peak of $4964 billion in 2026 but only redeeming $158 billion in principal until its new low of $4826 in 2035 after which it resumes its steady rise. Discount that ten year $158 billion for inflation and you see this would truly be a non-event

Okay in what way does this also make it ‘discounted’. Well simple enough, the interest retained to maintain sustainable solvency is not financed out of the then current economy, instead it comes in the form of newly created Special Treasuries. And since it is then part of the sustainable solvency principal that never has be be cashed in if normal growth continues the real cost to the economy is the difference between the Real Interest Rate of 2.9% and the Real Cost increase of 1.6%, or less than half of the rate on the face of the note.

Under the NW Plan we deliver 100% of benefits, achieve sustainable solvency, and relieve capital of the need to ever pay back the principal they borrowed, all at zero up front cost to the wealthy. All they have to do is to agree to pay heavily discounted to face of the note interest on the money they borrowed and continue to borrow though 2023. Who exactly is sucking the tits of the milk cow in this scenario?

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Wealthy families fighting for no taxation on wealth transfers

by Linda Beale
crossposted with Ataxingmatter

More on the Estate Tax Debate–Holtz-Eakin and the wealthy families fighting for no taxation on wealth transfers

So far, at least four of the wealthiest few Americans have died in 2010, when there is no estate tax under the “reduce, repeal and spring back” law enacted as part of the Bush series of tax cut bills with gimmicking sunset provisions. They are George Steinbrenner (worth $1.5 billion), Janet Morse Cargill (worth $1.6 billion), Dan Duncan (worth $9.8 billion), and Walter Shorenstein (worth $1.1 billion). The temporary elimination of the estate tax in 2010 cost the government roughly $6.5 billion in estate tax revenues in connection with just these four deaths. That a significant amount, especially when one considers that much of the value in these estates is likely to be financial assets on which the decedents paid very little in taxes during their lifetimes and on which any tax that was due was likely at a preferential capital gains rate. See TJ Wall, Steinbrenner Fourth Billionaire in 2010 to Escape Taxes, if Not Death, MichiganEstatePlanningLawBlog, July 21, 2010.

Bernie Sanders (independent senator from Vermont) introduced a bill this year –the Responsible Estate Tax Act (S. 3533) that would return the estate tax under Code section 2001 to the 2009 exemption level and add a progressive rate structure. Id. Accordingly, there would be an exclusion amount of $3.5 million and the tax would be determined by applying a 45 percent rate for values of estates from $3.5 million up to $10 million, 50% for amounts above that up to $50 million, and 55% for amounts over $50 billion, with a 10% surtax on estates of more than $500 million (i.e., amounts in excess of $500 million would be taxed at 65%). The bill would be retroactive to the beginning of 2010. That is probably a reasonable compromise, though I have argued elsewhere for a lower exemption level, since most estates would be excluded with a $2 million exemption amount.

The bill also provides for consistent reporting for estates and recipients of property, elimination of valuation discounts for non business assets held in a entity that is not actively traded, and elimination of minority discounts for transfers of interests in an entity when the transferee and members of the family of the transferee have control of such entity. It also requires grantor retained annuity trusts to have at least a 10-year term. Those are important anti-abuse provisions that would limit the ability of wealthy estates to evade the estate tax.

Regrettably, that bill is sitting in the Senate Finance Committee, where Max Baucus is chair and favors an approach that would cut much more taxes for wealthy estates.

In the meantime, the groups that are pushing for estate tax “reform” (by which they mean cutting the amount wealthy estates have to pay) are busy putting out propaganda attuned to the worries of ordinary people who might not otherwise support repeal of a tax for the wealthy. In other words, the propaganda claims that letting the wealthy keep even more of their wealth for their heirs will result in a trickle down of jobs to us ordinary folk. Douglas Holtz-Eakin and Cameron Smith, for example, have another of their opinion pieces on the estate tax, published under the aegis of a foundation that has been fighting the estate tax with propaganda sound bites for decades (the so-called “American Family Business Foundation”). See Growth Consequences of Estate Tax Reform: Impacts on Small and Family Businesses, American Family Business Foundation, Sept. 2010. Not surprisingly, the rhetoric claims that cutting the estate tax is “an important element of pro-growth tax policy” since it affects asset accumulation (DUH) and hence “payroll and investment decisions of small and family businesses”. The implication, of course, is that if only the wealthy are allowed to pass even more of their wealth to their heirs tax free, that money will be used to create jobs in the existing business and to invest in ways that create new jobs in new businesses. So the paper concludes that an estate tax rate of 60% “will cost as much as 1.5 million jobs” while a rate of a mere 15% “could diminish hiring by over 350,000 jobs.” It claims that estate taxes reduce capital outlays, lower “the probably of new hiring by 8.3 percent” and leads to “cutting the size of payrolls by 2.5%.”

Are those conclusions reasonable or justified or are they just the predictable output from mathematical models that start with assumptions about growth and investment that lead inexorably to such conclusions?

Let’s examine the paper’s arguments that “the estate tax is an important element of pro-growth tax policy for economic growth”:

1) The paper starts with an argument against stimulus and in favor of “pro-growth policies”. This is particularly unconvincing. It talks about the need for generic “households” to repair their balance sheets, and then suggests that stimulus doesn’t contribute to this while the estate tax would, by helping business sector spending.

Of course, the estate tax puts money in the pockets of the ultra wealthy, who lost the least in the economic recession and are least likely not to do whatever is needed in their business to increase its activity. Not convincing.

2) The article argues that small and family businesses and entrepreneurs are important to the economy.

Yes, I’ll go along with that.

3) the article then asserts that since these businesses are important , the “dramatic impact” of the estate tax on their owners (and hence on their owners’ enterprises) has a “disproportionate impact” on the overall economy.

Small businesses–most owners of which aren’t at all affected by the estate tax because their value is well under the exemption limit–are vitally important to the economy. Family businesses–many of which are truly megalithic industries (WalMart, Koch Industries, and many other huge corporations are “family businesses” in some sense of the word) are important to the economy, but in most cases either also small businesses and so not affected by the estate tax or such large businesses that the fact that the heirs to the family wealth may receive a little bit less is not going to distort business decisions or hinder business expansion when business expansion will make more money for the business.

The article claims that the effort to do estate planning results in less asset accumulation, thus affecting the amount the wealthy heirs can get and invest, thus affecting the economy and job creation. Oh, please. Yes, there is a cost to estate planning, and that cost may affect the savings rate of the wealthiest family by some small amount. There are several responses to that. One–make the rules harder to get around by typical estate planning techniques. The Sanders bill offers a good start–by eliminating valuation discounts and minority discounts in many cases, by setting up harder requirements for GRATs, and by requiring certain consistent reporting of basis. There should be more such provisions, and then the wealthy would spend less of their assets planning for how to avoid the estate tax. Two–estate planning would take place whether or not there was an estate tax, since much of it is to provide a way for a wealthy old curmudgeon to control his heirs, etc. Three–increased savings by the wealthy is not necessarily a benefit to the US economy in general, though it may be beneficial to the wealthy and their heirs. Savings may be reflected in offshore investment, etc. (see a number of earlier postings).

Now, the article relies on the fact that the estate tax is negatively correlated with the reported net worth of the top estates (quoting much of their own prior work and admitting that their “results are far from conclusive”). We’re supposed to pity the wealthy because the estate tax “reduces the lifetime marginal rewards for work, risk-taking and investment when compared to leisure or consumption.” Again, there are a number of responses to that observation. One–this is standard Chicago school economics, but we actually don’t know that the wealthy reduce their work because their estate may be subject to tax. They may increase their work instead. Economics can’t really say. Two, taking risks is of value when it is associated with entrepreneurship, but risk-taking is not per se valuable. IN fact, much of the risk-taking associated with concentrated accumulation of assets is likely to be of the kind that led to the financial crash–too much interrelationships among parties, too much throwing money after engineered transactions, etc. And as for “investment” versus “consumption/leisure”, again, we cannot truly predict what effect estate tax rates have on that decision or how that decision affects the economy–more investment may well be bad for the US economy if it is in offshore entities, while more consumption may be good for the economy if it is in US goods. So the “entrepreneur facing the estate tax” who “decides to buy an around the world cruise” to reduce the tax is not to be pitied. It’s unlikely that this person with such wealth is really an active entrepreneur in the first place–he may once have been an entrepreneur, but is likely at this point merely a preserver of wealth or even a monopolist (think Bill Gates and Microsoft). The cruise may well employ more people than if the wealthy person invested it in a hedge fund that made its money by engaging in financial transactions with other banks or shadow banks.

And to the extent that asset accumulation is limited, that is a good result–consolidation of wealth in few estates leads to oligarchy, and that may work ok for economic growth of the few estates at the top, but it isn’t good for the majority of ordinary citizens. Spreading the wealth more likely spreads job creation, the potential for entrepreneurship, and the ability of most of us to manage a decent life, contributing to the commerce of the community.

The article of course reiterates the tired argument that increasing the effective tax rate on capital income “affect[s] business growth and success.” Again quoting an earlier piece by Holtz-Eakin with others, they claim that “small businesses likely to face the estate tax experienced slower growth than otherwise situated competitors.” Even if this were true, the number is so small as to be de minimis–only 2-3% of small business owners will pay an estate tax.

The article then goes on to set the libertarian arguments–that the estate tax is a “tax on your right to transfer property at your death.” (of course, isn’t it really a tax on the ability of heirs to receive property from a decedent rather than having that property escheat to the state.)

————
In other words, there is a lot of hot air and not much substance in this further “report” from Holtz-Eakin shilling for the groups that want to eliminate the estate tax. They are the same arguments that have been put forward for years. See, e.g., Helmuth Cremer and PIerre Pestieau, The Economics of Wealth Transfer Tax, June 2010, an article which summarizes the critique of the estate tax as follows:

“Critics contend the tax distorts investment and other choices of the rich, and also affects owners of small family businesses. It raises very little revenue at a heavy cost to the economy. It generates complex tax avoidance schemes. The hardest hit by the tax are farmers and small business people who work hard to pass on an enterprise of value to their children. From a number of recent publications, we have listed a number of charges addressed to estate taxation in a sample of writings that are often more partial and polemical than balanced and rigorous.” Id.

The authors then provide responses to some typical anti-estate-tax points. They note that while the estate tax does not raise “considerable sums” it does makes up a non-negligible 2% of total federal tax proceeds. They agree that the estate tax doesn’t eliminate wealth inequality, but note that it does have some impact. They admit that people with the same size estate pay different taxes depending on many factors (asset structure, fiscal engineering, suddenness of death, etc.) but note “that calls for reforming the tax and not necessarily killing it.” While heirs can be asset rich and cash poor, valuations often reflect the current use of the property rather than its market value. The estate tax does have a positive effect on charitable contributions (which after all isn’t a primary reason for the tax). The estate tax theoretically violates the tenet of “no double taxation” but in fact the realization and other rules mean that much of the gain in value of assets has never been subject to capital gains tax or any other tax. As far as the concern that the estate tax results in over development and thus harm to the environment, the authors suggest that an arrangement between heirs and the State can solve that problem. As for estate tax critiques that argue that repeal would create millions of jobs, increase business capital, increase probability of hiring, increase payrolls, expand investment and slash the jobless rate, the authors scoff that “these forecasts are too rosy to be credible.”

The estate tax is an unpopular tax in the US, perhaps largely true to the constant stream of anti-estate tax literature or, as the article notes, to the particular framing of questions about the estate tax. Fewer than 2% of decedents’ estates are subject to the tax.

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Predicting the Start and End of the Great Recession, and Trying to Sell Books

by Mike Kimel

Predicting the Start and End of the Great Recession, and Trying to Sell Books
Cross posted at the Presimetrics Blog.

No doubt you’ve heard that the NBER put the endpoint to the last recession in June of 2009. I wonder if anyone forecasted that. Oh yeah, back in December of 2008 I said I expected the recession to end in the first half of ’09. (Yes, I know, the post was put up in early January, but I sent it in a few days before the end of the year, as is plainly evident if you read the comments to that post.) I think I made that call only a few weeks after Larry Kudlow stopped talking about the Goldilocks Economy and started acknowledging there was trouble. And incidentally, I also noted in a number of posts that the recovery would be unimpressive when it did arrive.

In the spirit of tooting my horn a bit (my wife tells me I don’t do it nearly enough), I would also note that I noted that the economy was in recession as early as March of ’08, and that the recession was a bit different from most earlier recessions. In fact, at about the same time, I also prebutted some of the arguments that conservatives and Austrians might make as they try to take credit for predicting the mess themselves.

Now, granted, I misunderestimated the inanity of the previous and the current administrations’ responses to the mess, and thus the severity of the recession, but I also recognized that recession really was not going to be the end of the world and that it would take mismanagement for it to end up being considered truly awful. For instance, the 73 – 75 recession, could have been alleviated with decent leadership, but it was going to be a deep recession no matter what. By contrast, this latest downturn could have been like early 90s fall-out from the S&L crisis except for the stupendously poor decisions made by those running the show. Yeah, I know, plenty of people who didn’t see it coming and then didn’t see it ending don’t agree with this last paragraph… so I’m going to avoid some grief by not telling you (right at this moment, anyhow) where the economy is going from here, and when.

Other recession-related predictions I got right… I think spotting the end game for the bail-out early on counts for something. And while its not recession-related, I did note something a few times that has some bearing now, which is that sooner or later even the conservatives who couldn’t stop singing Karzai’s praises would conclude he was a corrupt kleptocrat.

So… since I’ve got a book to sell, I have to ask – where’s my media exposure? Why am I not on tv? Doesn’t getting it righter than the average bear count for something? I can be loud and obnoxious if I have to. And the book is quite good if I say so myself,, and pretty original to boot.

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Dr. Lawrence H. Summers to leave WH

The NYT reports that

Dr. Lawrence H. Summers, Director of the National Economic Council and Assistant to the President for Economic Policy, announced his plans to return to his position as University Professor at Harvard University at the end of the year.

Dr. Summers is the chief White House advisor to the President on the development and implementation of economic policy. He also leads the President’s daily economic briefing.

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CGI, Day 2 – Securing the Health and Safety of Girls and Women

Tina Brown introduces:

  • Gary Cohen, Executive Vice President, BD
  • Geeta Rao Gupta, Senior Fellow, Bill & Melinda Gates Foundation
  • Richard C. Holbrooke , Special Representative for Afghanistan and Pakistan, U.S. Department of State “and, of course”
  • Ashley Judd, Board Member, Population Services International

Starts with Geeta Rao Gupta, who declares the primary issue to be that hundreds of thousands of women are dying because of entirely preventable causes, such as 350,000 worldwide due to complications from pregnancy.  (Fifty million [50,000,000] child—under 18—brides worldwide.)

Tina takes the microphone away to talk about Ashley Judd’s discoveries in the Congo. (If this organization wants to concentrate on policy, not celebrity, Tina Brown should not be moderating.)  Judd, though, rises to the bait, nothing that Secretary of State HRC’s visit was not productive, and the people on the ground in the Congo did not believe that they were heard.  Only 6% of DRC has family planning ability; those who want to use family planning solutions but do not have access to such will have hundreds of thousands.  “100% of the women Judd met had been gang-raped more than once.”  Tells story of woman whose husband said “you have been raped too much” and left.

The word “fistula” was used extensively during Ms. Judd’s presentation, including a couple of times about “fistula repair operations.”

Gary Cohen notes that he was pulled into the issue of sexual violence against girls because of his work in fighting HIV/AIDS.  Found that 1/3 of girls in Swaziland who had experienced sexual violence, and that 29% of those became pregnant—effect is that about 10% of the female population is effectively eliminated from being part of the productive workforce, even if they are not part of the ca. 2% of the total female population that will die in childbirth.

Now working through other organizations, including a partnership with PEPFAR (about which Mike Kimel is more enthusiastic than I am, but which abides in either case) to try to empower women to facilitate AIDS/HIV relief.

Richard Holbrooke notes that he has never seen a State Department initiative to educate the men in leadership positions about the dangers of sexual violence against women.  They are trying to change that, but facing political issues. (We need to work with the [corrupt, violent] police in Afghanistan, but they have until recently been the largest part of the problem.)

Discusses the flood in Pakistan; shows a map of the affected area superimposed over U.S. and Canada—very little not covered.  International community is not going to be able to raise enough;Pakistani government is going to have to increase its revenues just to be able to pay them out.

The biggest problems will be now: 4-5,000 schools, hundreds of hospitals, countless homes have been washed away.  People will go back and they—especially the kids—will start drinking the stagnant water, resulting in dysentery at best. We are in a massive new round of fundraising to address the flood.  “Not one child I talked to knew how old they were.”  Information must be disseminated by radio—need portable radios.  Water purification: working with P&G, but do not have 10-gallon cans that can be used with P&G’s PUR product.  Need to teach people to use part of a packet.

Ms. Judd notes that the water issue is key to PSI; do monitoring and real-time data analysis and “barefoot entrepreneurs” (people on the ground) to emphasize the issues, and deal with “the chlorine taste” (if the mix is not ideal) as “the taste of health.”  Work toward a positive result, not the “if you drink this water, you will die” so much as developing social capital. (Dysentery is the #2 killer of under-5 children in the developing world.)

Geeta Rao Gupta notes that programs have been developed on the social level—cites several projects that have emphasized male education activities.  If you can provide services where women get a return on their labor, the household income is increased.  Needs to be cast as initiatives to improve the welfare of the households.

Mr. Cohen notes that they categorize “sexual violence against girls” as a human rights issue. Notes that Swaziland is the most leading respondent to their initiative, which also has cooperation from UNICEF.  Transfer to community level, which directly deal with organizations that educate men and boys about the opportunities when women have the opportunity to earn as well.

There is more data, and it is getting more attention, so it is easier to talk about the problem. Mr. Cohen notes that the Soviet rape in Berlin in 1945 (“a drunken orgy of revenge”) while Bosnia was a “calculated use of rape as an instrument of war.”  (Maybe John Barnes’s painful phrase Serbing should be used more generally.) Clearly becoming more systematic.  Geeta Rao Gupta notes that she works with efforts such as GEMS to provide information and educational opportunity to people.

Tina Brown finally proves her value by noting that need to make these points through stories and narratives.  That gets the young people involved in an issue.

Ashley Judd lists several organizations with which to work, such as Women 4 Women, Girl Up, Girl Effect (which, as Tom Watson notes, released a marvelous PSA today), and The Enough Project (which is directly related because a substantial amount of the  most egregious sexual violence against women occurs in “conflict mineral” countries).

She also notes that there is a female condom available worldwide (though not so much in the U.S.), which they promote through dialog with hairdressers (who then speak with their clients).

Best route to a good result is to provide access to contraception, planning, and information.  Will not help to “wag the finger from the top”; need to enable control with the people who want to have control over—freedom for—their own bodies.

Mr. Cohen is optimistic, partially because we have seen much progress made on this issue over the past few years at CGI.  Tina Brown notes that we’re probably not at a “tipping point” yet, but certainly getting closer to achieving awareness.

As Nick Kristof twitted earlier today (again, via Tom Watson, translated from Twitter into English), “Clinton Global Initiative this year seems very focused on investing in girls as cost-effective strategy to fight poverty.”  As strategies go, this one is—or, more accurately would be, in a world where economic models worked well—Most Likely to Succeed.

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Clinton Global Initiative, Day 2 – Empowering Girls and Women (Plenary)

Moderator is Katie Couric, News Anchor and Managing Editor at CBS News. Panelists are

  • Her Majesty Queen Rania Al Abdullah , Hashemite Kingdom of Jordan
  • Ellen Johnson Sirleaf, President of the Republic of Liberia
  • Muhtar Kent, Chairman and Chief Executive Officer, The Coca-Cola Company

Mr. Kent’s favorite book is Thomas Friedman’s The World is Flat.

Queen Rania notes that the women are working very hard, but their time is not sufficient for everything that needs to be done. Part of this is the mindset (marriage > human capital development), but a significant portion is lack of available infrastructure.

Ellen Johnson Sirleaf: We started by focusing on women in the “informal sector,” providing educational opportunities and the like.  But this wasn’t enough in either respect: needed to provide more opportunity for work out of home and more protection on government level.

Mr. Kent notes that 70% of his customers are women.  Looked into future development and realized there was a significant mismatch in the company’s efforts, philosophy, and customer base.  “It’s a journey; it doesn’t happen overnight, but we are making good progress.”

Queen Rania notes that “no country can make any progress in spite of its women…They need to be injected into the supply chain.” Have contributed more to GDP than technology gains over past 20 years.  The greatest issue is the amount of time it takes to get an initiative in place and to see positive results from it.

Katie Couric asks how important a role is it to educate boys.  Queen Rania notes that the social attitudes harm boys as much as it does girls.  Girls get married instead of getting a job—but boys are forced to drop out of school to provide for their family.  So both lose in that situation.

Mr. Kent speaks of “microdistribution,” which actually originated at last year’s CGI, when Mr. Kent committed to 1,500 more projects, and that half of those would be women.  Not only passed that target, but they now employ an additional 18,000 people—total of 20,000 employed through 1,500 micro projects.  Barriers that had to be overcome—access to finance and land, especially—resulted in development of Best Practices that is now being spread as the model to South America and other locations.  Next goal: empowerment for 5,000,000 additional women between now and 2020.  Will involve both the distribution and retailing sides of Coca-Cola’s business.  Have mobile support for teaching “the basics of retailing” (e.g., stock rotation).

Some of the symbiotic relationships that enable that: In India, for example, carry water miles to their village.  We provide Clean Water which frees up the women’s time and leads to them to start their entrepreneurial work. Most “become leading citizens in their communities,” which leads to opportunities for expansion. (Gives example of a woman who started with one location and is now franchising and employing sixteen [16] people.)

Asks President Johnson Sirleaf about the “ripple effect,” and what the critical first step is.  For us (Liberia), we started with the first step of education—not formal education so much as access to knowledge.  Schools, literacy training, and a have a program that came out of a program from the CGI a few years ago, in cooperation with the World Bank and Nike, to train adolescent girls to go into the particular job that are currently in demand.

Question from YouTube: access to seeds and market information?  Mr. Khan has a project in cooperation with the Gates Foundation to create entrepreneurship for 50,000 farmers to create juice concentrates needed by Coca-Cola.  Have been working with the farmers—and discovered that only 1% of the land ownership was by women.

Queen Rania notes that in twelve countries in the Middle East, have more girls in school than boys. Biggest challenge is how to get women into the labor market, which (as this paper notes) helps both, as it did in the past.

President Johnson Sirleaf notes that there is no legal restriction in Liberia against women owning land, but there may well be structural issues.  Most farmland development now is being driven by women, “the men rather just play drums.”  (Mr. Khan, in response to a question from Couric, notes that competition makes the entire sea go up—helps both.)

How do we end violence against women and girls?  President Johnson Sirleaf says “we are going to stay the course. Make the penalties more intense—and enforce them. (Her example is making the rape of a four-year-old girl equivalent to murder.)  Queen Rania notes that the Community and Religious leaders need to cooperate as well in this effort to facilitate change. She found that when she started working about the subject of child abuse in Jordan, the first problem was that people denied it existed.  Have to have people confront problems before can solve them.

60% of women and girls in developing countries will be married before they are 18, and will have four children before they are 20.  Why does the issue of child marriage continue to travel under the radar.  Leading cause of death for girls aged 15 to 19 in developing countries is complications from pregnancy.  Jordan just raised the minimum age for marriage to eighteen (18) in reaction to seeing teenaged girls who have four children and ten years of “work experience.”

Biggest issue in Liberia is the transition into and through secondary school.  Mr. Khan focuses on “golden triangle”: collaboration between government, businesses, and civil society to lead to greater belief in the future and expectations of a future.

Katie notes that she has two teenaged daughters.  Other than bringing international attention to it, what can we do?  Queen Rania recommends Girl Up (which needs a website developer), a project of the United Nations Foundation that supports school supplies, medical checkups, and clean water to facilitate opportunities for girls in other areas.

Mr. Khan reiterates the obvious: families have to believe in the future, that there will be a better future,to make any progress toward long-term development. With a coordinated effort through the “golden triangle,” we will see improvements and developments.

We can only hope he is correct, and that people will find other jobs than just being a Coca-Cola franchisee as the 21st century develops.

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Clinton Global Initiative – Economic Empowerment (Lunch Session)

(Joined in progress)

Governor Jennifer Granholm of Michigan

Michigan – “No Worker Left Behind,” which provides retraining for those downsized auto workers and others.

Escalation of high school curriculum so that graduating students must have taken college prep courses—has resulted in reduction in dropout rate because the community understands that this is a good thing for its students.

MI expects to create 89,000 jobs over the next decade in Alternative Energy—including the Lithium-Ion batteries that will power the hybrid and electric cars.

Governor Granholm states (recapitulation from last year) that Greenville, MI, “is determined to live up to its name” and expects to be able to sell alternative-energy generated (solar, wind, etc.) power to traditional companies.

Depend upon and expect to partner with private sector; strategic investment with the private sector has enabled Granholm to reduce the size of the State Government and maintain the state-constitutionally-required balanced budget. (Grants and Federal assistance in developing alternative energy have helped as well.)  “We can lead the world,” but are facing investment from the governments of China and Korea that are already investing billions (Korea just announced $12B investment) in developing those.  Granholm: “Would hate to see the development and design done here and the manufacturing done overseas.”

Rajiv Shah, US Agency for International Development (USAID)

Formerly of the Gates Foundation; father worked for three decade for Ford.

Almost every country that has emerged from extreme poverty did it by developing Ag and then moving away from an Ag-centric economy.  We know that Ag-lead development is three to four times more effective than “general GDP” growth.  If focus on Africa and South Asia, would (and do) know that this pathway needs to be enhanced.  Despite the efforts of such as AID, local and \

Speaks well of the Green Revolution.  (Muhammad Yunus, when I asked him about it at last year’s conference, was a touch more ambivalent about its success.)  Notes that the Green Revolution didn’t extend to Africa because “we just failed to try.”  Our agency (USAID) “has been as guilty as anyone”; real aid to Africa has declined by ca. 85%.  This has resulted in child malnutrition rates rising in those countries to a 30-40% range.  Ultimate result is that ca. 130MM people were moved back into poverty.

Need roads; notes that Michigan has many “FM #” roads (Farm to Market).

USAID is investing in the countries that are putting out their own efforts to develop Ag economy; more interested in working with countries that work with them to develop new businesses, including those that add verticals to existing situation, such as processing coffee beans locally, instead of having them shipped and enhanced in developed countries such as Italy.

Very happy that USAID is not needed so much to provide direct food aid; prefers to facilitate development.  Most profound model is that of South Korea—which invested in agriculture and education and developed an export-led growth strategy.  Went from having lower GDP per capita than Kenya to being a member of (and, this year, the host of) the G-20.

Some specific developments are soybeans in Brazil that require less nitrogen (fertilizer) to grow.  Have great hope for Ghana, Rwanda, Tanzania, and Senegal—devoting resources to those countries in expectation of great returns.

Focused on reforming the procurement and investment mechanisms of USAID to make it easier to work with organizations such as the Gates Foundation and local NGOs. In the case of Haiti, developed a single form to clear all of the hurdles to approval that those local NGOs had never processed. There are many creative people in government who are employing the same entrepreneurial spirit to develop responsible and effective ways of improving resource allocation and expediting public-private partnerships to leverage the best features of both.

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Clinton Global Initiative, Day 2 – Plenary Session

The second day of the conference, and the first full of the Initiative, is devoted primarily to E&E.

Random notes:

  • President Clinton noted in his opening statement that the Haitian disaster’s immediate effect was to eliminate (kill) 17% of the Haitian workforce.
  • Melinda Gates notes that her efforts are mostly aligned with MDG #4, but it is only through achieving that that they can possibly achieve MDG #1.
  • President Clinton notes that, as an economy develops, age of marriage goes up and birth rate goes down. (Collaterally, this dovetails well with Melinda Gates’s point that we have made great strides in reducing infant mortality.)
  • Eric Schmidt notes that mobile telephony/devices facilitates business, communications, and knowledge; “allows the world to be one world.”
    • Schmidt compares this with President Clinton’s initiative fifteen (15) years previously to put wired computers in all public schools.
  • Melinda Gates notes that smaller groups have to work through goal-oriented process and adapt/learn “on the ground.”
    • Gates Foundation works to reduce risk, but ultimately need to be working with and have the cooperation of the local Government.  (Examples: Ethiopia and Malawi, both of which are working toward goals and identifying the steps along the way, not just declaring the overall view.)
      • Smaller organizations can do the same thing—but really need to pay attention to the facts on the ground. (Example from Ms. Gates was Save the Children.
  • Bob McDonald of P&G works with the governments and other partners.
    • Have reduced the cost of water purification to about $0.01/liter—a “dime a day” to provide clean water for a family of four.
  • What should all the leaders of countries be thinking about with respect to technology?  Eric Schmidt: Goal is to create as many new jobs as possible through using and leveraging the technology that is available. The concentration shouldn’t be on the educational and analytical part so much as “creating jobs.
  • President Clinton asks President Tarja Halonen of Finland what she would do if she were elected the President of Haiti.
    • Encourage creativity; even the smallest entrepreneur is an entrepreneur.
    • “I would speak to the women….I would ask that the President of Haiti would [take] the good counsel of the women.”
  • President Clinton asks the key question: “Why, in 2010, do we still have to have these sessions about the need for female empowerment?”

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there’s a simple way to curb borrowing: Let the tax cuts expire for everyone

Lori Montgomery in the Washington Post Fearing a soaring deficit, many analysts favor letting Bush tax cuts expire makes a slip in thought or typing, but I wonder if a lot of people might also use this shorthand sort of thinking in the tax cuts raise revenue tradition:

…many economists and budget analysts say there’s a simple way to curb borrowing: Let the tax cuts expire for everyone.

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A cut in payroll taxes? Heck no.

Prof Barkley Rosser expresses irritation with suggestions of pay roll cuts as stimulus:

In yesterday’s WaPo, accessible as one of Mark Thoma’s general links, http://www.economistsview.typepad.com , Nouriel Roubini sounded very reasonable for anyone addressing the utterly corrupt and degraded “catfish” deficit commission soldouts. He proposed a cut in payroll taxes, to be made revenue neutral by following through on the Bush-mandated end of his own tax cut for those earning more than a quarter of a million a year.

Bruce Webb in comments lifted from Econospeak:

The problem with Roubini and a bunch of left commentators is that they keep coming up with solutions to the wrong problem. Yes we should work to make the tax system more progressive. No we shouldn’t devote those extra revenues to Social Security.

One is the reason Dale brings up, Social Security was set up on an insurance model for very sound reasons.

Two is Rosser’s Equation. Although few people understand this CBO has calculated that 45% of future growth in Social Security costs is due to the formula that has its real benefits as measured in purchasing power growing over time. And as it turns out growing enough that even the projected 22% cut at Trust Fund Depletion still would leave a better real benefit than today. Yes we can and should take steps to shore up those benefits, but not at the cost of taking opportunities to use restored tax progressivity to address a whole bunch of other priorities more pressing than a nominal cut to benefits 27 years from now which may or may not be necessary anyway.

It kills me that in a world where the wealthy are fighting to the death to avoid a restoration of Clinton era top rates that people blithely suggest we can just slap on 4 or 6 or 12.4% on and dedicate it to Social Security. Which won’t need the money for years. Not only is this not productive, it simply feeds the narrative that somehow Social Security is the biggest problem facing us when in reality it should be far down the priority list.

Plus addressing the biggest challenge we have today, which is high unemployment that threatens to become structural has the side effect of fixing Social Security along the way. There is nothing about SS that can’t be fixed with 5% unemployment and 1.5% real wage, achieve that and money rolls in the door to the Trust Funds. I think they call that ‘Win Win’.

Prof. Barley Rosser lifted from comments as well:

Let me say that I probably overdid it in terms of hyperbolically picking on Roubini, whom I mostly respect. It may have been frustration that someone like that was falling for something like this, although the analytics if one could have the politicians behaving are correct: temporarity cutting the fica tax while eliminating the Bush tax cuts for high income folks could be a revenue neutral way of providing some fiscal stimulus. But one could achieve the same result by simply further cuts in income taxes for lower income people.

There is a huge amount of politics behind this, clearly. One can go back to the last period of the Bush presidency when there was a push by Dem Kent Conrad, then Chairman of the Senate Finance Committee along with some high level people in the Bush adminstration to impose a simultaneous benefit cut with a tax increase on the social security system, it being thought this was the only way to sell a tax increase. That got squashed by Cheney, who maintained the “no tax increases” mantra, along with Grover Norquist et al. But the ghost of that, that somehow Social Security is the easy target for reducing the deficit continues to haunt us.

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