Are economist’s rational?
I just couldn’t skip this one…disinhibition and odd “metaphor” combined:
Lynn Parramour writes:
Thomas Ferguson and Robert Johnson of the Institute for New Economic Thinking, two economists who have tried to expose the problems in their field, remind us that even when you look at the evidence of recent reports of the trustees overseeing the program, Social Security’s fiscal fitness remains strong. At worst, if the economy were to grow relatively slowly over the next decades, there might be some shortfall in the Trust Fund way down the road, in 2030s. Even then, the fund would not be empty. Tax revenues would still cover approximately 75 percent of promised benefits until 2085. That’s hardly an emergency. All the Chicken Littles yammering about a potential shortfall are basing their views on predictions that may very well turn out to be totally off-base.
“Talk of the bankruptcy of Social Security,” Ferguson and Johnson conclude, “is hot air.”
But that has not stopped many economists and political allies from acting as if the program were going bankrupt, and that the only way to save it is to make cuts immediately. The fantasy of prediction, we will see momentarily, is followed closely by the fantasy of supremacy.
…
The two lead advocates for cutting Social Security are multimillionaire elites Alan Simpson, a former Wyoming senator, and Erskine Bowles, a former White House chief of staff. They are co-chairs of President Obama’s debt commission. Listen to them talk about the program, and you will quickly notice them exhibiting a supremacy fantasy in highly gendered language. In 2010, Simpson famously referred to the Social Security program as a “milk cow with 310 million teats” that the population was sucking on. Object relations theorist Melanie Klein, who focused on the infant’s relationship with the mother’s feeding breast in her work, would have no doubt found the image fascinating. It’s as if the economy, for Simpson, is a Great Breast he wants all to himself. He becomes bitterly resentful when anyone else gets a drop.
Okay, okay; after a decade of wondering I’ve finally figured out this trust fund confusion. What’s causing all the confusion among economists is their not recognizing the need for MULTIPLE trust funds — one for each generation.
I mean what’s the point of building up a trust fund if you are not going to draw it down? If your generation of retirees is going to draw it down, what about your kids’ and your kids’, kids’ trust funds. I mean if one generation of Social Security retirees needs to depend on a trust fund to pay out their benefits — for some reason — then EVERY generations of retirees needs a trust fund, right? Am I right?
So what’s been missing all along is the need to start several new trust funds. Trust me; that will clear up all the confusion.
(An alternate theory — possibly supported by the actual trust fund legislation; it’s controversial — is that you should have one full year of benefits — which the trust fund legislation defines as “solvency” (thank you Bruce Webb); which in practice would unfold into years of covering a shortfall between growing out go and insufficient FICA income. IOW, the trust fund could be seen as merely a financial mechanism to cover shortfall until Congress gets around to adjusting the FICA tax — which it may as well since the trust fund bonds have to be cashed with income tax …
… or printed money, if Congress is addicted to the easy way out every time …
… not as a savings account to be drawn down, which possible misconception has caused all the confusion. ???)
There isn’t much here. By itself there is nothing remarkable about Simpson’s metaphor. He is a farmer and a farmer would naturally think in terms of pigs and piglets without any particular sexual or sexist meaning occurring to him. What did amaze and dismay me was the left’s giving itself the fantods over the expression and asking that nice Mr Boles to make Simpson shut up. It is as if two guys came into your house and started raping your daughter. One rapist has a foul mouth but the other is very polite. So you, the left, demand that the polite rapist make his partner stop talking dirty.
Alan Simpson’s penchant for outrageous remarks was a gift to the left. Every time he spoke his mind he won converts to the cause of saving Social Security from such unpleasant people. But the left wouldn’t rest until he was silenced and the Big Liars could go back to pretending to be reasonable people.
After all, we can have a nice polite conversation about forcing granny to live on cat food, but we can’t say titties.
And, while I’m here, I’ll just mention I recently completed a conversation with a prominent defender of Social Security… no names please… who insists that Social Security is a “regressive tax.” I tried to explain to him that Social Security is a “package”… a very PROgressive package… and it is nonsense to pretend you can separate the funding of that package and call it “regressive” while the package itself is not only progressive, but is the best deal the poor have ever had in America. I didn’t get anywhere with him, but we managed to remain polite.
My point being that “the left”, while it’s heart is in the right place, can’t seem to find it’s brain. We are in a war to save Social Security from very bad guys whose chief weapon is to convince the public that Social Security is welfare, and welfare which will bankrupt the country while imposing crushing burdens on “the young.” But we, our side, can’t bring ourselves to explain to the people that Social Security is not welfare, and doesn’t cost “the government” a dime. It is paid for by the same workers who will get the benefits… the very workers we depend up to say “we paid for it ourselves.” But some of us are so wedded to the welfare idea we can’t even think in any terms except “make the rich pay.” Never mind that Social Security has prevented poverty for seventy years exactly because it is not welfare, not paid for by the rich, or by “the government.” It is a way for the workers to pay for their own basic retirement by protecting their saving from inflation and market losses, while insuring each other against a lifetime of wages too low to save enough to retire.
Denis
I think you are still a little bit confused.
Social Security is essentially funded by a pay as you go plan. No “trust fund” is really necessary, except as a means to smooth short term imbalances between collecting the money and paying the benefits. A full one year’s reserve is probably too much. That is a reserve equal to the total benefit payout for one year. It would take a pretty bad recession some ten years to spend down “one year” reserve… assuming each year taxes were ten percent short of needed payouts.
On the other hand, such a bad recession is not completely impossible, and it probably WOULD take Congress ten years to figure out that the answer to the mismatch would be to simply raise the payroll tax to pay for it. The congress thinks of the payroll tax as a government expense, and one percent of wages is a lot of money. But if you, the worker, had to pay an extra one percent in order to make sure you would still be able to retire at a reasonable age, you wouldn’t even notice it, and if you did, you would easily see the wisdom of it.
The Trust Fund that we think of today is three times the size of the “one year’s reserve.” It was created by raising the payroll tax on the boomer generation in order to finance the extra large boomer retirement. And it makes perfect sense as a matter of policy and “equity.” But that doesn’t mean the lying politicians can’t find ways to make the public misunderstand it entirely. From calling it “worthless iou’s” to crying hysterically every year when the Trustees Report that some day in the future we are going to run out of those worthless iou’s.. by paying for the boomer’s retirement as it was intended for.
Unfortunately it is not only the big liars who find ways to make the public misunderstand it entirely. Most of the defenders of SS misunderstand it themselves, or cloud the understanding of others by insisting they have secret knowledge of the real intentions… or lack of intentions… of those who raised the tax that created the Trust Fund.
Not that anybody pays any attention to what the left thinks, but by failing to challenge the basic misunderstanding foisted by the Peterson gang, they leave the public at the mercy of the Liars, and of course prepare the dance floor for the eternal waltz of the left and the right.
Coberly: Simpson is NOT a farmer, he’s a politician and a lawyer. (Simpson, Keppler, & Edwards– Cody, Wyoming–He has two sons Bill & Colin who are both attorneys at the same firm, they also have furniture manufacturing shop down the street from their law firm) His brother Pete used to be Governor here but now teaches the law school at UAW, Pat, his wife is “The Church Lady” They all live in downtown Cody except Colin who lives in a “suburb” outside of town uphill from Walmart. None of them are farmers.
STILL, no matter how much the sky looks like its falling, SOCIAL SECURITY is OK and running fine. Al just wants to dip his hands into The Trust Fund, that’s all AND Obama wants to help him.
AL is rich—-TAX HIM.
Denis Drew: NOBODY in THIS GENERATION is going to live long enough to “draw down” The Trust Fund.
mike
i thought that might be the case. if i say Simpson “is a farmer” can I mean that he has the perspective and language of one? i am not (much of) a farmer myself, but i spend a lot of time in rural settings where people talk about animal breeding in a way that is neither sexual nor sexist, but probably not in a way you would talk in your victorian maiden aunt’s parlor.
i just had not realized that so many on the left were victorian maiden aunts.
in any case my point was that Simpson was a gift to the left. one they were too stupid to use.
I’d be glad to tax Simpson… a “deficit surtax” of about ten percent until the deficit it no longer a hollering point in Washington.
But taxing him to pay for Social Security would be a fatal mistake. as I keep trying to explain. to deaf ears.
still, you give me an excuse to say it again
the “death of the Trust Fund” will have no meaningful effect on anyone.
All it is is the date when a decision will have to be made (actually it won’t really “have to be made,” but politically it will) about whether to raise the payroll tax or cut benefits. It would be stupid beyond belief to cut benefits. it will be harder to raise the tax about two percent at that time than it would be to raise it about one tenth of one percent each year before that time. but in the end it makes practically no difference to anyone… except in their imaginations. the tax increase will be unfelt… even the 2% all at once would be unfelt after the initial screams of pain and outrage… and the people paying the tax will get their money back with interest when they will need it far more than they do at the time they pay the tax.
unless of course they decide to “tax the rich” instead. the rich will not get their money back, and they are gonna be mad about that. and they WILL find a way to destroy Social Security. meanwhile for the past seventy years workers have been proud to say “i paid for it myself.” something “the left” can’t seem to understand even though they repeat it whenever they think it will do them some good.
oh, in case anyone is really confused.. i am not a shill for the rich. i am a shill for workers who need to be told that the best way they can guarantee they will be able to retire when they need to is to PAY FOR IT THEMSELVES. it will cost them about an extra eighty cents per week per year for no more than about twenty of the next seventy five years.
Coberly:
Coberly: The Workers have ALREADY PAID enough to have a 2.5 trillion surplus. THAT surplus money IS loaned to Treasury to pay for goods&services that would be better paid by direct TAXATION not by simply TAXING working people more of their income to make a bigger pile of T-Bills in The Trust Fund which will grow&grow helping no-one but Treasury, while PAYGO pays the bills. Let the surplus stay as it is, its STILL growing, and should Treasury need more funding then, BORROW it from The Fed or TAX THE RICH.
BTW Simpson was good for Wyoming in The Senate, IMHO. He badmouths Westmoreland in a heartbeat which gives him an A+ in my book.
Also THANX for calling “The Left” stupid.
The Scientific Method of NeoClassical Economics, which is the dominant form of economics in the U.S., is most rational and most difficult.
For example, only 800 Ph.Ds and 2,000 MAs in economics are awarded each year in the U.S. compared to 100,000 MBAs – 90% of those who apply for grad econ aren’t admitted, and up to 90% of those admitted never complete grad econ, for one reason or another.
Of course, most students find proper thinking very difficult, and forcing them to think beyond their capacities to think, to increase their capacities, is pure torture to them, when they’re not writing equations as fast as possible, if they could get in grad econ.
However, even economists become irrational when they’re political biases flare up, and run rampant, although not all economists have extreme political slants.
mike
i’d like to agree with you… because your heart is in the right place. but you simply do not understand how SS is financed. i tried to explain it a little bit above. doesn’t seem to have taken.
peak
spoken like a true believer. by your logic if more ph.d’s are awarded in physics than in basket weaving, that proves basket weaving is harder than physics.
on the other hand if you are claiming that economics is more “serious” than the MBA, i’d probably have to agree with you.
Coberly, according to your logic, from my statement above, if only 1% of people who want to be basket weavers became basket weavers, it’s easy to be a basket weaver.
There are many tough fields, including in sciences, engineering, and liberal arts, e.g. econ and math.
Also, I may add, from my experience, most people don’t even know what economics is about.
Econ departments prefer math majors than econ majors for grad econ. I’d say in grad econ, over 40% are math majors, over 40% are econ majors, and the rest come from other majors.
However, math majors don’t understand the models, terminology, and methodology well, while econ majors don’t understand the math well.
Nonetheless, most Ph.D and MAs in econ are technocrats. For example, they study the bark on the tree, but don’t understand the forest. They focus on and isolate something specific, that often proves conventional wisdom wrong, although they can’t tie together that finding in a comprehensive way or in a sound general equilibrium model.
My first day in grad econ, in Macro 5000, the instructor wrote the most detailed equation I ever saw using all four chalkboards and had to write smaller and smaller towards the end.
After a few days of this, a Saudi student (at CU-Boulder) said “What is this? I thought this was economics?” The instructor looked at the chalkboards and said “What is it you don’t understand?” The student said “I don’t understand any of it” and said to the class: “Does anyone understand this?” The class said nothing. The instructor said “Come to my office after class for further instruction.”
Anyway, students were given a mountain of work in each class causing men to snap at each other and women to cry from the enormous stress.
I recall taking the comp exams in International Trade. At one point, the instructor used a variation of the Mundell-Fleming model. I studied it very well mostly from a very condensed book, where each page could’ve been expanded into 100 pages, when the models, terminology, and intermediate math steps were included. However, a question he asked me drew a complete blank and wasn’t anything in the textbooks and notes. He then gave me easier and easier questions, related to that shift in the model, until I could answered one. I think, they allowed me to graduate just to get rid of me 🙂
Coberly: I’m beginning to think that YOU are worried that YOU won’t get YOURS after paying in ALL these years should the next generation NOT PAY at a higher rate than YOU did.
Getting YOURS is a function of controlling Congress on the matter of benefits NOT making those younger and less well off pay an extra amount of THEIR income over the amount that YOU have paid.
Not to mention that 2.5 trillion in The Trust Fund attracts quite a heard of leaches so far. The bigger the pile the more bigger and badder leaches come to the feast.