Relevant and even prescient commentary on news, politics and the economy.

The F story about the Great Inflation (knowledge transmission)

Simon Wren-Lewis takes a look back to the 60s and 70s…”The reason I write about this now is that I’m in the process of finishing a paper on the knowledge transmission mechanism and the 2010 switch to austerity, and I wanted to look back at previous macroeconomic crises.”  Robert Waldmann is part of this post.

The F story about the Great Inflation

Here F could stand for folk. The story that is often told by economists to their students goes as follows. After Phillips discovered his curve, which relates inflation to unemployment, Samuelson and Solow in 1960 suggested this implied a trade-off that policymakers could use. They could permanently have a bit less unemployment at the cost of a bit more inflation. Policymakers took up that option, but then could not understand why inflation didn’t just go up a bit, but kept on going up and up. Along came Milton Friedman to the rescue, who in a 1968 presidential address argued that inflation also depended on inflation expectations, which meant the long run Phillips curve was vertical and there was no permanent inflation unemployment trade-off. Policymakers then saw the light, and the steady rise in inflation seen in the 1960s and 1970s came to an end.

This is a neat little story, particularly if you like the idea that all great macroeconomic disasters stem from errors in mainstream macroeconomics. However even a half awake student should spot one small difficulty with this tale. Why did it take over 10 years for Friedman’s wisdom to be adopted by policymakers, while Samuelson and Solow’s alleged mistake seems to have been adopted quickly? Even if you think that the inflation problem only really started in the 1970s that imparts a 10 year lag into the knowledge transmission mechanism, which is a little strange.

Comments (12) | |

Tale of Two Charts: Medicare 2009 and 2015

Update: some guy named Krugman suggests that I am not totally off base here. The Disappearing Entitlements Crisis I hear he has an audience.

Update two: Social; Security Defender Archive docs and spreadsheets

Update(From main Angry Bear page you may need to click ‘Read More’ to see Charts)

2009 GDP

2015 GDP

2009: Medicare Unsustainable. From less than 4% of GDP heading straight for 11%.
2015: Medicare You Decide. Still less than 4% of GDP heading for 6%

Why is JEB still having the same conversation about viability of the program?

Ten years ago I would have earnestly told you that we didn’t have an ‘Entitlements Crisis’, we had a ‘Health Care Crisis’ that was reflected in the Medicare numbers. Today? I am not seeing ‘Crisis’ at all. And certainly no ‘Crowding Out’, no ‘Intergenerational Warfare’. The Social Security and Medicare population are projected to increase from around 16% of the population now to 25% in the next few decades. And the amount of GDP we will need to devote to their income and medical care will go up proportionally. What’s the alternative? Starving gramma and denying her pills?

Update: some guy named Krugman suggests that I am not totally off base here. The Disappearing Entitlements Crisis I hear he has an audience.

Tags: Comments (34) | |

Table IV.B5: Social Security OAS and DI Actuarial Balances by 25 Year Subperiod

Table IV.B5.—Components of Summarized Income Rates and Cost Rates,
Calendar Years 2015-89
[As a percentage of taxable payroll]

2915 Table IVB5
Lots of numbers here but the only ones want to focus on are those in the last column, those which show actuarial balances for each of the OAS and DI Trust Funds for for the next 25, 50 and 75 years for each of the Low, Intermediate and High Cost Alternatives.

The first thing I want to note is how front loaded the crisis is for DI. Under current projections its Trust Fund will go dry in the 4th quarter of 2016. On the other hand the total fix for the period 2015-2040 is only 0.30% of payroll. Which is almost identical to the cost of the fix for the whole 75 year window or 2015-2090. Meaning this isn’t a case of a patch that needs to be revisited a couple decades out. We could if we wished fix DI for 2016 and 2040 and 2090 right now for a very modest cost. Moreover such a standalone fix would meet the requirement the Congress stuck into the budget rule, that any fix for DI would have to positively effect the overall prospect for combined OASDI. While this requirement was inserted in hopes of Obama and the Dems being forced to open up the entire program for discussion and ‘reform’ there is actually no reason NOT to piece-meal it. Fix Social Security DI by a one time increase in FICA of 0.31% of payroll and we have bought more than a decade of space to address OAS.

Another way to look at this is as a down-payment on the Northwest Plan. Once people see how cheap and easy a DI fix was making them understand that a series of increases even smaller than that starting 3 or 5 years down the road might be the optimal choice. Or at least as the opening point for negotiations on the right mix of revenue enhancements.

In the meantime: DI Fixed. Done. For as Far As the Eye Can See. Let’s get started?

Tags: , , Comments (102) | |

2015 Social Security Report: Infinite Future Fun

2015 VI.F2
Hmmm. I think I’ll just let people have fun figuring out what this all means. Hover over the image or double click and you should get legible version.
Hint the meanings of ‘past’ ‘current’ and so ‘future participants’ might not mean exactly what they seem at first encounter. You can scroll to the text from this attached link to the Figure.
Table VI.F2.—Present Values of OASDI Cost Less Non-interest Income
and Unfunded Obligations for Program Participants,
Based on Intermediate Assumptions

Tags: , , Comments (54) | |

Social Security Report: What is the “Low Cost Alternative”

Well one answer it line I in the above figure from the 2015 Social Security Report.
Figure II.D7.—Long-Range OASI and DI Combined Trust Fund Ratios Under Alternative Scenarios
[Asset reserves as a percentage of annual cost]

Under the definitions used by the Social Security Actuary and Trustees the program is ‘Solvent’ over the short term if it never gets within 10 years of dipping under the 100% line in this figure, ‘Solvent’ over the long term if it never hits that 100% line in the 75 year actuarial window and ‘Sustainably solvent’ if the line is trending upwards as it leaves that window. Under this year’s Low Cost Alternative it would meet all those tests.

Now there are two ways to look at “Low Cost”. One is as a combination of economic and demographic numbers that are together riding the outer edge of the probability band. Which is to say a combination that if current policy remains unchanged will have maybe a 5% chance of occurring. From that perspective it is just Pie in the Sky optimism. The second though is to see its OUTCOME as a target and to use the various components of Low Cost to show us where to focus our attentions. For example if we hold demography steady would improvements in Real Wage Differential and Productivity move us closer to Solvency? Well we just need to inspect the relevant Table. In this case Table V.B1.—Principal Economic Assumptions And the first order answer is “Yes, improvements in those two metrics improve solvency, move us closer to the desired outcome”. Now the second order answer might be “But the specific projections are still too optimistic, maybe we can move in the direction of Low Cost, but not get all the way there”. Which doesn’t mean just dismissing Low Cost, instead accepting that it gives us policy guideposts “Go THAT way!”. And why not? So what if the realm of the possible puts limits on our reach? If getting halfway to the goal via this path does good things for Social Security and good things for the economy at large why shouldn’t we use them as deliberate targets for active policy?

In future posts I will put us some specific projections of Low Cost and ask why they are out of reach. Note I will not be asking why the entire combination of projections is feasible. Because Low Cost is an artificial model that assumes that a lot of things break in a positive way, not all of which may be realistic. Which doesn’t subtract from the reality that if we can move 6 of 10 variable in that positive direction then positive effects are seen.

Comments (23) | |

2015 Social Security Report Release Day (w/updates)

At 1:30 EDT the Trustees of Social Security will hold a media availability at which they will release the 2015 Social Security and Medicare Reports. If past practice holds the Reports will be released on line at or before that time in both a web (HTML) format and in PDF. Assuming past file name conventions hold the two URLs will be: and

Once the Report is released this post will be updated with key numbers, dates and talking points. I will also be working with the text of the Report to transform it into more readily accessible form as an Excel Workbook with associated .jpgs and .pngs of the more important Tables and Figures. More on that as we go along.

Note the above links will be dead until Report release. The actual launch page for current and past Reports is here:
Right now that current Report shows as the 2014. This should update to 2015 immediately on release and so this is probably the best link to be clicking on in the meantime. At least it will get you somewhere other than dreaded Room 404.

Back with more when there is more.

Update 1 Report not out online but Treasury Press release has Trust Fund Depletion in 2034 and 75 year actuarial gap at 2.68 or down from 2.88. Reasonably good news but the devil is in the details which are still forthcoming.

Update 2 HTML version online under first URL cited above.

Tags: , , , Comments (76) | |

Have you noticed your Home owners insurance? Clean energy news and lots of water.

A year ago I noticed my property owners insurance has been rather high.  I say property because some is home, some is business.  So, being that have been using accounting software since 1991, I went back a few years to see how much.  In 2003 the house was $454/year.  This year it will be $1543.  Better than tripled.   Do you know why?  Natural disasters.  Google it.

That brings me to 2 recent articles.  This one regarding how fast the ice is melting.  Faster than they thought.

The study—written by James Hansen, NASA’s former lead climate scientist, and 16 co-authors, many of whom are considered among the top in their fields—concludes that glaciers in Greenland and Antarctica will melt 10 times faster than previous consensus estimates, resulting in sea level rise of at least 10 feet in as little as 50 years.

The science of ice melt rates is advancing so fast, scientists have generally been reluctant to put a number to what is essentially an unpredictable, nonlinear response of ice sheets to a steadily warming ocean. With Hansen’s new study, that changes in a dramatic way. One of the study’s co-authors is Eric Rignot, whose own study last year found that glacial melt from West Antarctica now appears to be “unstoppable.” Chris Mooney, writing for Mother Jones, called that study a “holy shit” moment for the climate.

Well, I think that is the correct response.

Tags: , , , , , Comments (18) | |

CRS: Social Security: What Would Happen If the Trust Funds Ran Out?

Very interesting paper that I missed in real time.
Social Security: What Would Happen If the Trust Funds Ran Out?

Almost everyone who addresses this question assumes that the answer is pretty simple: if either of the Social Security Trust Funds goes to zero than benefits will automatically drop from ‘Scheduled’ to ‘Payable’ which translates to a 22-25% overnight cut depending on which Trust Fund we are talking about. But I had an interesting conversation with Andrew Biggs some years back. Andrew is a very prominent advocate of Social Security ‘reform’ which he sells on the basis that the system is ‘unsustainable’. As such he and I and Coberly and he have had some vigorous debates over the years, and mostly he is firmly in the ‘bad guy’ category on policy. For all that he is a nice guy and really, really knows the numbers and laws in play. Not least because he spent some time as the Principal Deputy Commissioner of Social Security (the no. 2) during the Bush Administration.

With that as background Biggs told me that the situation at Trust Fund Depletion was not as clear-cut as almost everyone assumed and had been the topic of some high end discussion at SSA. And their conclusion as related by Biggs to me mirrored that of the Congressional Research Service in this Report from last year.

The Social Security Trustees project that, under their intermediate assumptions and under current law, the Disability Insurance (DI) trust fund will become exhausted in 2016 and the Old-Age and Survivors Insurance (OASI) trust fund will become exhausted in 2034. Although the two funds are legally separate, they are often considered in combination. The trustees project that the combined Social Security trust funds will become exhausted in 2033. At that point, revenue would be sufficient to pay only about 77% of scheduled benefits.
If a trust fund became exhausted, there would be a conflict between two federal laws. Under the Social Security Act, beneficiaries would still be legally entitled to their full scheduled benefits. But the Antideficiency Act prohibits government spending in excess of available funds, so the
Social Security Administration (SSA) would not have legal authority to pay full Social Security benefits on time.
It is unclear what specific actions SSA would take if a trust fund were exhausted. After insolvency, Social Security would continue to receive tax income, from which a majority of scheduled benefits could be paid. One option would be to pay full benefit checks on a delayed
schedule; another would be to make timely but reduced payments. Social Security beneficiaries would remain legally entitled to full, timely benefits and could take legal action to claim the balance of their benefits.

The Report proceeds to outline the possible responses and is interesting for that alone. More important for my purposes though is the suggestion that the “conflict between two federal laws” precludes the option of Congress just sitting back and letting “automatic” cuts happen. Because as Biggs some years back and CRS last year point out, there is nothing automatic about this at all.

Anyway something to talk about for those of us jonesing over the release of the 2015 Social Security Report. Which my fellow junkies is scheduled for tomorrow (Wednesday) probably at 1PM Eastern. If past file name practices are observed the web version should be available via URL:
while a PDF version should be viewable or downloadable at:

I should have another post up with these same links prior to Report Release. But anyone who wants to bookmark the URLs and try to get a jump on just about everyone else in the country should feel free.

Tags: , Comments (66) | |