Open thread Dec. 27, 2013 Dan Crawford | December 27, 2013 7:51 am Tags: open thread Comments (15) | Digg Facebook Twitter |
The first economic number everyone looks at every quarter is the rate of GDP growth. The last number anyone ever seems to cite when comparing today’s wages to past decades’ (especially the minimum wage) is economic growth — like 180 quarters of mostly growth since 1968 never happened.
Time to get the eighth-grade math into the cultural DNA, folks.
Since 1974, the income share story has been that the top 97-98%, maybe 99% kept about full pace with per capita economic growth (per capita income, productivity, whatever) — while the 50-90% kept up from not at all to fully, varied along that curve. The top 1% glommed all the excess growth that _bottom_ 90% missed out on (or the bottom 50% might have lost they had before).
Since the 2007 recession, I keep seeing figures that the top 1% now take in all the per capita growth. We now have wheels within wheels of so-called “inequality” (I in my clunky way call it the “Great Wage Depression.)
I get my income share numbers (got, past tense, on 6/24/2006), 18 comments down on Dean Baker’s old blog (his comment). Without these numbers I would have no idea at all of what is happening in the American labor market PROPORTIONATELY. Be nice is these numbers (much updated) were widely available to non-economic types (like politicians and cab drivers).
Harold Meyerson in his epic essay The 40-Year Slump, Nov 12, 2013 nears the end with: “Amassing the power to secure those remedies will require an extraordinary, sustained, and heroic political mobilization.”
He, like every other American progressive never says a word about the most appealing, ultimately easy to implement reform of the American labor market: legally mandated, centralized bargaining (all similar jobs in relevant locales under one contract) which would automatically reverse labor’s economic and political course here.
This labor market alternative way is in use for decades around the world — beginning on continental Europe, post-WWII (instituted by management). American labor will kill for centralized bargaining if they ever hear about it (every American laborer I explain it to says it sounds like a good idea — not because they are scared of me :-]).
Unlike most eras when the tradeoffs to be paid for political do-gooding scare off over intelligent type presidents who are super smart about re-arranging the deck chairs –getting the best that can be had from the current consensus — but unable to change the culture (MLK could change the culture — while JFK did his best to avoid civil rights) — Obama has a unique opportunity to change the culture with only deck rearranging skills.
There is a reason the “zombie” party keeps neck and neck if not ahead of the progressive party in election after election. Voters will tell you that the improve really don’t do anything substantially to change their lives (health care a rare exception — that most didn’t need). The core of economic life — and most of human existence — is about pay and benefits and these forever drop even as the economy grows. Try to restore labor’s preeminence and the Democrats would restore their majority EVEN IF THEY DIDN’T SUCCEED!
Supermarket workers (I know, I talk to them) and airline workers would kill for centralized bargaining. If even Harold Meyerson wont even bring up the subject … . ???
THIS SHOULD BE A LITTLE EASIER TO ACCESS — SORRY:
Just another thought on the SS Trust Fund — once you start to think about it — as payout approaches FICA income.
I was thinking that the TF was designed in 1983 so that it would grow until whatever accidental (arbitrary) date in the future — whence — outgo begins exceeding income. At which accidental year the bonds will begin to be depleted to cover the shortfall.
This seems to mean that if Congress is responsible and raises the FICA rate just enough to cover retiree outgo — once the rate established arbitrarily in 1983 just barely covers outgo — and continues in years thereafter to raise FICA just enough cover outgo — that — the never ending FICA surplus will grow the TF forever and ever. Wonder what crazy level the TF would reach in 100 years!?
Okay; I figured out what I did wrong — be glad I’m not your accountant. Anyway, you get the idea.
yep. it grows until it reaches 100% of one year’s benefits… which ought to be enough to bridge about 10 years of any normal recession.
so how does it grow while it’s falling from 300% of one year’s benefits to 100%?
easy, as the population grows, and the economy grows, and even, gasp, as inflation grows, the number of dollars grows, but is less and less of a percentage of one year’s benefits.
with the one tenth of one percent increase in the tax “as needed” the interest from the Trust Fund is allowed to …by a small amount… help pay for those benefits.. which puts a damper on that exponential growth, and what exponential growth is left over just keeps up with the exponential growth of … one year’s benefits.
i shouldn’t say this in public, because some readers will think “exponential growth” means “huge” growth.
not so. not if the exponent is small.
SSTF excess receipts no longer exist to be invested in perpetual war which will never pay SS back.
Heritage Foundation and Council on Foreign Relations (crusaders for crony capital) weighing how SS and Medicare outlays exceeding the % GDP for the pentagon crowd out the common defense of Formosa, Korea, Japan United Kingdom, Israel, Germany and good war plant jobs in the districts.
The past two years the SSTF needed a bit of interest in the form of cash to meet outlays, it still grew in FY 13 about $69B (FY 12 to $2586B to FY 13 2655B) in new intragov holdings according to the audited statement released on 12 Dec 13.
If SSTF T bills are redeemed for cash the US’ general revenues have to supply the cash or the treasury needs to sell t-bills to the privately held side, who always want cash interest and the principal when they decide not to renew.
The panic over the SSTF being “depleted” is the effect on deficits, tax cuts and crony capitalism of discretionary spending.
you are right. problem is how to tell the people. it’s not the “ss deficti”.. there isn’t one… it’s the general budget deficit, which SS is not going to be able to help fill that worries them.
though i am not sure they need worry even about that.
read these guys and they all believe in some goddam “economic theory” which turn out not to mean much in the real world…. but you’ll never tell them that.
even if the theory meant anything… we might have to decide between between being a decent society and “maximum growth” or “incentives to work”
which is to say… why don’t we just do the right thing… and see how that comes out. my guess is it would come out very well. it always has. and the goddam budget hawks have been with us since at least Scrooge… and been wrong every time, all the time.
Denis the SS Trust Fund was designed in 1939 and hit much higher levels of prefunding in the 50s (when TF ratios went from 2000 to 500) than they have or are expected to do since 1983 (topping out below 400).
The idea that the nature or function of the Trust Funds changed in 1983 is a pure historical fallacy. If you want to call current balances ‘prefunding’ then fine, but the idea that this is novel just isn’t supported by the data. There was a brief period in the 60s when Social Security could truly be said to be both strictly pay go and solvent (with TF ratios above but not far above 100) but in retrospect that was an anomaly.
The anomalous period was 1937 to 1945. The tax rate was planned to increase 1 percent at 3 year intervals, but receipts were so much higher than expected, Congress chose to delay the increases. (SS detractors use Altmeyer’s warning not to delay the increases to pretend that Altmeyer thought SS was not financially sound.)
The norm was for Congrees to make adjustments. They made dozens of adjustments from 1941 to 1983, making “scheduled benefits” mean something in the 70’s. Unfortunately, they did not create a “scheduled premium” to go with it.
Again unfortunately, the adjustment needed for the Baby Boom was so large that it covered up the need for periodic adjustments. People have forgotten what used to be the norm.
It also seldom gets noted that the 1983 adjustments did not include only the payroll tax increases phased in fro 1984 to 1990, they also include benefit decreases that occurred most recently in 2008 and will phase in additionally from 2021 to 2025. The idea that today’s 50 year olds are not contributing to “the solution” to SS funding is wrong.
i really don’t know the details of the history and would not pretend to know what anybody “intended,” but I lean toward your view.
The Trust Fund has undergone some changes in “effective intent” over the years. Basically it is a balancing fund, and a reserve, balancing the monthly variations in income/outgo, and “being there” in case of an extended imbalance as caused by a recession.
At the beginning, the Trust Fund was allowed, intended, to build… I assume in anticipation of the growth in the size of the retired population, simply as a consequence of phasing in the program.
And there was a whole big problem with inflation and recession at the same time that caused the benefits to outrun the income “dangerously” which was resulted in the ultimate 1983 fix.
Everything I have ever read convinces me that the folks doing the fixing understood about the coming Baby Boom and the role the increased tax rate would play in creating an increased Trust Fund sufficient to help balance the pay as you go “generational inequity” that would otherwise follow on the exceptionally large Boomer cohort.
To deny this because of something Bob Ball said, in another context at another time for another purpose seems to me to be a naive reading of “history.” In any case saying “The Trust Fund was created to pay for the Boomer retirement” is a forgivable shorthand and not “a pure historical fallacy.”
As for the needed adjustments… the “deciders” of the time had the option of gradually raising the tax or gradually raising the retirement age. They chose the latter because they understand that the horror of a five cent tax outweighs the horror of having another year added to your sentence. Unlike some of us, they have never had the kind of job that destroys your health and your sanity… if, that is, your company does not downsize you… and if you can find a job at all over the age of sixty.
First impressions count: I always assumed there was some rhyme or reason to the “Trust Fund” — Al Gore promising to put Social Security “in a lock box”, etc.
But as the TF and I both “matured” it began to strike me odd that the TF should be built up for 30+ years and then drawn down for 20+ years. Would sound reasonable for a person’s life — but whole populations go on forever — what’s the diff between the before and the after?
Why “save” for the future now and “deplete” for the present later — what’s so unimportant about the future of the future that _it_ doesn’t have to be saved for?
Especially when the TF bonds would have to be cashed by income tax instead of FICA, that’s all — especially within especially when the regressive tax will come early when per capita income will presumably (barring a comet strike) be lower and progressive tax will kick in when (barring a limited nuclear exchange) per capita income will be higher.
It is not like Congress specified some size for the TF to reach (e.g., 400 for safety). The 1983 Congress just seems to have set in motion a blind process. Unless Congress was intelligent enough — I doubt it — to realize that the practical result of it all would be to relieve Congress of raising the FICA rate for maybe 60 years.
In any case, if anyone worries about the TF running out just tell them what I said before: just print some more TF bonds and then go on printing the money to cash the TF bonds (they don’t imagine Congress will raise income tax if it wont raise FICA). If you are going to print the money you might as well print the bonds. 🙂
i like paying for what i get. it helps keep people honest. and i feel funny about funny money.
but as it happens, if the people just pay for the retirement benefits they will need “in advance” (which is really how pay as you go works, though many folks can’t understand that) the Trust Fund Bonds never have to be “paid.” And that’s fine with me. SS gets a legal reserve and a bit of interest. The Congress got the value of borrowing the money without ever having to pay it back. The Boomers will have paid for their own larger costs, and the after-the-Boomers will get the benefits they are paying for.
and all the accounting works out without introducing funny money which would open a can of worms you wouldn’t believe.
Actually Denis Congres/current law does set a “size for SS to reach” for “safety” and that is 100.
One big problem is that until very recently only a small number of people actually understood the ins and outs of the Greenspan Commission and how the final deal came down. That was in large part because the autobiography of the major player on the Dem side got caught up when he (Bob Ball), well died, leaving it incomplete and in the hands of the editor. However the part concerning the Greenspan Commission was actually in camera-ready form and by a pure stroke of luck and being in the right place at the right time I got a hold of it pre-publication. And it shaped my reporting on SS even though I really couldn’t cite it. But it has since been released in standalone form and so is free game for everyone.
What was originally a LOONNNG chapter in Bob Ball’s autobiography was published as a standalone by the Century Foundation in 2010 under the title:
The Greenspan Commission: What Really Happened
It is a totally fascinating read and among other things blows a huge hole in the Tip-n-Ronnie narrative. In fact Reagan had to be dragged to this deal. But to the point:
Most of the Commissioners just didn’t have the skill sets to evaluate the actuarial details and were totally reliant on scoring coming out of the Office of the Chief Actuary. Three who weren’t so reliant were Executive Director Bob Myers, who had spent several decades as Chief Actuary, but was officially neutral, Bob Ball, the author of the piece and formerly a long-time Commissioner of Social Security but in this game more or less the official emissary of Speaker Tip O’Neill and Senator Pat Moynihan, who as always was brilliant and as always was infuriatingly playing his own game. Plus if he care to take notice Chairman Greenspan obviously had the chops, but in Ball’s account seem’s somewhat detached.
The bottom line is that most Commissioners had no idea of what would happen in the middle years of the 75 year projection. By the time the deal was struck they knew that it would take care of the Ten Year gap, which frankly was the main thing everyone was focused on since it would put this whole thing back beyond the 1988 election. They also were informed that it would take care of the 75 year gap ON AVERAGE. That is once Congress actually made some final choices on how to backfill the remaining gap left. But what only Myers, Ball, Moynihan and perhaps Greenspan understood was that there would still be a temporary gap sometime around (natch) 2012 because in the case of Social Security ‘average’ doesn’t get the job done. Not if the Trust Account is projected to go to zero in ANY year.
How there were a few ways the Commission could have handled this. They could have just phased in FICA increases even slower but had them extend longer but by so doing pushed out the time when the system could be said to be ‘solvent’ by definition. Or they could have somewhat front-loaded it to have the numbers come out right at the end of the first 10 year period. Which is what they did, by 1992 the Trust Fund was ‘solvent’ by definition. But still facing a problem some 20 years down the road, i.e. about now. But that problem, such as it is, actually won’t eventuate in real terms until 2020 or 2033 depending on how you define it and you have to be pretty tunnel visioned to blame the 1983 folk for ‘only’ fixing the problem for FIFTY YEARS.
Which doesn’t change the fact that certain players knew they were punting the ball down the road and also knew that there would arithmetically be a buildup in the Trust Fund in the meantime.
Obviously Bob Ball was a major partisan as well as a major player and so maybe you don’t have to take every single bit of this as Gospel. On the other hand I have friends who were basically Disciples of Bob in real time and am inclined to trust both them and Bob. Then again I am a devotee of the FSM so there you go.
Anyway I would urge anyone with an interest in what really happened in 1983 to borrow or buy a copy of Bob Ball’s “What Really Happened”.
The Trust Fund’s T-Bills will end up sold to the FED just like in Qualitative Easing. The FED will print up ALL monies necessary to pay for said T-Bills.
Good news is hard to come by in this age of disparate income and wealth. But sometimes shit happens that brings on the sense that sweets flow to the sweet, and vice versa. From this morning’s NY Times:
Yes, I know it’s not nice to speak ill of the dead, but it is necessary to recognize the contributions each has made to the greater good. Or not.