Harvard surveyed their Alumni and guess what they found?
So some econ out of Harvard is shocked about what he found regarding our economy. It’s a government problem. The government is just not responding (read that: not doing anything).
Americans no longer trust their political leaders, and political polarization has increased dramatically. Americans are increasingly frustrated with the U.S. political system.
The political system is no longer delivering good results for the average American. Numerous indicators point to failure to compromise and deliver practical solutions to the nation’s problems. Political polarization has especially made it harder to build consensus on sensible economic policies that address key U.S. weaknesses.
The solution: Cut the corporate tax and balance the fed budget.
The Eight-Point Plan consists of the following policy recommendations: simplify the corporate tax code with lower statutory rates and no loopholes; move to a territorial tax system like all other leading nations’; ease the immigration of highly-skilled individuals; aggressively address distortions and abuses in the international trading system; improve logistics, communications, and energy infrastructure; simplify and streamline regulation; create a sustainable federal budget, including reform to entitlements; and responsibly develop America’s unconventional energy advantage.
What did you expect from the conservative mind? OK, they do want to do more than cut the corp rate:
Consensus corporate tax reforms include reducing the statutory rate by at least 10 percentage points, moving to a territorial tax regime, and limiting the tax-free treatment of pass-through entities for business income. The transition to a territorial regime should be complete, not half-hearted via the inclusion of an alternative minimum tax on foreign income.
They want alternative energy. Ya think? I was wondering when some smarty in an econ department would notice that not having to pay for fuel for electricity, just pay for infrastructure and maintenance would be a competitive advantage that We the People are losing.
Though if find the call to increase “highly skilled” immigration to be kind of counter to:
Inadequate investment in those parts of the business environment on which middle-class Americans depend (areas like K–12 education and skills)…
The report does call out business for not doing their part.
Many companies have failed to invest enough in improving the business environments in the regions in which they operate. Companies can have a major impact on restoring U.S. competitiveness through internal steps such as training and improving opportunities and compensation for lower-income employees. Companies must also step up their role to enhance the business environment in their communities by investing in workforce skills, supporting public education, restoring a local supplier base, and participating in collaborative economic development programs in their regions.
I should not be too hard on the report. After all, they are noting one thing I was harping on years ago here at AB. The decline in trust which I suggested was the biggest factor in undoing our economy. From the Harvard report:
The political system is no longer delivering good results for the average American. Numerous indicators point to failure to compromise and deliver practical solutions to the nation’s problems. Political polarization has especially made it harder to build consensus on sensible economic policies that address key U.S. weaknesses. It is at the root of our inability to progress on the consensus Eight-Point Plan.
I quote myself from October 8, 2007, Human Capital is where it’s At:
My quick assessment of this report is that it is a testament to the misdirection of our policies. [referring to the World Bank report].
“Trust” seems to be the real intangible the report is talking about. We as a whole can be educated to the hilt, but if we can’t trust that our efforts will be put to constructive use, we have problems.
From my article quoting the World Bank report:
The rest of the story is intangible capital. That encompasses raw labor; human capital, which includes the sum of a population’s knowledge and skills; and the level of trust in a society and the quality of its formal and informal institutions. Worldwide, the study finds, “natural capital accounts for 5 percent of total wealth, produced capital for 18 percent, and intangible capital 77 percent.
It does not take a Harvard degree to figure out what is wrong with our nation. It just takes not thinking selfishly. It takes stopping the thought that if we just mind the money (economics) all of society will structure appropriately such that the risk of life and living are reduced for all. As I have stated in the past, an economy is not a society. An economy is only one possible sub set of a society. I hope you read both the Harvard report and my past article.
let’s see… government no longer helps the people because government has been captured by the people who espouse the Harvard theory of economics.
what grates on me is that all these highly educated and intelligent people think that “reforming entitlements” has a damn thing to do with either the government debt or the growth (jobs producing) of the economy.
Social Security is simply the people paying in advance for their own retirement and insuring each other against very common risks inherent in saving for retirement. It is not paid for by the government, and it does not subtract a damn thing from potential investment.
This is not entirely true of Medicare, but it could be, should be.
I can’t imagine what else they mean by entitlements, unless they mean this would be a better country if people who fall upon hard times were left to starve in the streets until they are willing to accept lower wages. lower than will support life, let alone a life that includes health care and eventual retirement.
Coberly must disagree that SS pays forward – it is a now system. By cutting people’s pay by X% FICA, the worker cannot buy goods with that amount or set it aside, freeing up that productivity that it could have purchased for retirees. Problem is that we probably have and have had for some time plenty of excess capacity of workers (unemployment anyone?) to create goods for retirees (or import those goods). Probably much the same with Medicare.
On another note the corporate income tax is stupid. Replace it with some sort of corporate revenue VAT so that ALL cos pay for infrastructure not just profitable cos. They all use it whether they make money or not.
Matt, don’t know why you got caught in moderation. Sorry about that.
That said I disagree with everything in this comment. But don’t have time right now. Cheers!!!
Matthew, your post brings to mind this quote attributed to the eminent German theoretical physicist Wolfgang Pauli:
“Das ist nicht nur nicht richtig, es ist nicht einmal falsch!”
Matthew
a worker would have to save a certain amount of his income for retirement, and being retired would have to spend a certain amount of his savings on living expenses…. however he “saved” the money.
that money when saved is no longer available for the workers immediate consumption. that money when spent is no longer available for investment. turns out that SS accomplishes all this without reducing the total consumption at the time the worker saves his money, or reducing the amount of available investment at the time the worker cashes in his savings… by the magic of pay as you go financing. the “interest” is supplied by the general growth in the economy (arguably “average wages). I am sure if you work out the math on this you will understand how it works.
as for the corporate tax, i am assured by the corporations that they just pass the tax on to their customers (or, negatively, to their workers). by replacing the income tax with the corporation tax the same thing would be accomplished with less money lost to bookeeping and accounting by the citizens. the corps have to do it anyway, so they wouldn’t be adding to society’s burden of accounting costs.
We all know that workers are not paying for their own retirement when paying FICA taxes. That is, however, a suspension of disbelief that must be maintained to keep the system going. What workers are paying for is, primarily, the maintenance of current retirees. Secondarily, they are paying for disability and life insurance. Tertiarily (Is that a word?), they are paying for other current government spending. If they were not doing it through excess FICA taxes, they would be doing it through income taxes or tariffs or some other tax. The problem with that last is, of course, that FICA taxes are regressive, and so funding current expenditures through excess FICA taxes is sub-optimal from a redistributionist point of view. However, it is a very small portion of current expenditures.
“[As] for the corporate [income] tax, [I] am assured by the corporations that they just pass the tax on to their customers (or, negatively, to their workers). [By] replacing the [personal] income tax with the [corporate income] tax the same thing would be accomplished with less money lost to [bookkeeping] and accounting by the citizens. [The corporations] have to do it anyway, so they wouldn’t be adding to society’s burden of accounting costs.”
Actually, the corporations would NOT have to do it anyway if there were no corporate income tax. They would not have to employ the army of tax attorneys that they do now, nor would they skew their expenditures to minimize taxes. Much brainpower is now wasted in the unproductive labor of computing and minimizing corporate income taxes.
Furthermore, if corporations simply pass on the taxes in higher prices and lower wages, then the corporate income tax is regressive, since poor people spend a higher percentage of their income than do the wealthy. At best, they are flat. Either one is undesirable from a redistributionist viewpoint.
Joel please point out how it is incorrectly wrong. Bottom line is that SS is productivity based. Current workers need to produce goods for themselves, and retirees. If they are able to do that the SS system is solvent. All the calls otherwise are incorrect, and based on a misunderstanding of how SS works.
Warren
to translate another commenter here: that is not only not right, it is not even wrong. the trouble with your analysis is you apply an inadequate understanding of so some part of the whole problem and link it by free association to other parts an announce that you have solved it, when in fact you don’t know what you are talking about.
sorry, it’s garbage, and i have no more time for it.
same for McOsker.
Can’t rebut a non-rebuttal, so we will leave it there.
“If they are able to do that the SS system is solvent. ”
SS is solvent. SS cannot not be solvent. Anyone who claims that SS is insolvent doesn’t understand SS.
Thanks, Joel
though I agree with you there is a sense in which SS could be said to be “insolvent”:
if nothing is changed between now and about 2030, SS will not be taking in enough money through taxes and interest and drawing down the principle owed TO it) to pay the “promised benefits” to those who will then be retired, who may feel that they are “owed” the promised benefits because they paid the required tax.
what’s wrong with this is that between now and then those future recipients could pay a higher “tax” and then there would be enough money coming in to pay all promised benefits. Since the needed higher tax amounts to about a dollar per week increase each year, ending when the tax has been raised about two percent for the worker and two percent for the employer… as against having benefits cut by about 25% from the scheduled (“promised”) level, it would seem to be insane not to raise the tax.
but that’s what’s happening. thanks to the Big Liars, the bought politicians, the idiot press, and the people who believe them.
since incomes are expected to go up over that time, even though the tax will be 2% (of payroll) higher, take home pay will be at least 20% higher to begin with and keep on rising (while the tax rate remains the same) until even with the higher tax, take home will be more than twice what it is today.
this can only happen if somehow people think that retirement should be free… or cost the same when they are living longer…. or cost the same percent of wages even when wages have not kept up with the costs of living.
even those scheduled benefits are so much more than todays that with the big cut projected for 2030 the real value of the benefits will be more than they are today…. (this may not be entirely true anymore, because obviously they won’t be more than they were the year before they were cut. and we are going to, or have already, cross the line when the real value of benefits will no longer be greater than “today” but they will be more than they were in 2010 or whenever we started trying to explain this to people.
small note for constant commenter: this is not a rebuttal because i already told you and you didn’t think about it. but try. on any given day the amount of money being “invested” is reduced by the amount of money past investments are paying out in dividends or selling of stocks. this is exactly the amount by which “potential” investment is reduced by the payroll tax… which goes directly that day to pay the expenses of the retired… just like the dividends or stock sales…
so where does the money for growth come from: from the extra money invested over what needs to be paid to past investors that day. once you have paid your SS tax, you can invest the rest of your money as you please. result is no net effect on investment. and you seem to have forgotten that when you buy a stock, you no longer have the money to buy lunch with.
“SS will not be taking in enough money through taxes and interest and drawing down the principle owed TO it) to pay the “promised benefits” to those who will then be retired, who may feel that they are “owed” the promised benefits because they paid the required tax.”
Glad you put “promised benefits” in quotation marks. SS doesn’t “promise” benefits. SS projects benefits based on current algorithms and assumptions about the future. Currently, SS projects a significant cut to benefits sometime in the 2030s unless some adjustment is made. These cuts are necessary because SS must always be solvent.
IOW, SS is and will always be solvent–by law. For this reason, SS does not promise benefits.
Joel I never said SS was insolvent. I believe it is 100℅ solvent, not constrained by dollars at all.
joel
yes, of course. but that is just a matter of words. what matters is what SS does, what it can do, and what it needs to do it.
the stuff about SS being broke is nonsense. “busted” is a lie.
but to get SS to do what you, we, they, are going to need, want it to do is going to require that we put a little more money into it. so little that it’s a crime that the people are not being told about it.
Matthew: i went back and re-read what you said. I have to say I can’t derive any meaning out of it whatsoever.
Warren
so i went back and re-read what you said.
calling SS a “regressive tax” is nonsense, even if college professors do it.
SS is a savings and insurance contribution. you pay for what you get.
what makes it insurance is that if you end up with low savings after a lifetime you get back more than you paid in… even allowing for inflation and a modest “interest.” that feature makes the program highly PROGRESSIVE… so it’s stupid to look at the premium and call it a “regressive tax.”
let me say it again: it isn’t a “tax” and the poor get back more than they pay in. so do the rich, but the rich get back less more.
just repeating the words you have heard the liars tell you does not amount to actual thinking about what you are saying.
“Between now and 2030…, since incomes are expected to go up over that time…, take home pay will be at least 20% higher to begin with and keep on rising.”
Well…. not so much.
Let’s look at the Brookings Institute’s study that examine those people eligible for Social Security at age 62. (These are from 2012, so the people were born in 1950.)
https://www.brookings.edu/wp-content/uploads/2016/02/BosworthBurtlessZhang_retirementinequalitylongevity_012815.pdf
Take a look at Figure B-7. For average and above-average earners, their peak earning years were in their mid-40’s. For those who will be 62 in 2030, that’s NOW, and it’s downhill from here. The lowest 30% of male earners had their peak earnings in their late 20’s! For those turning 62 in 2030, they were partying in 1999, and it’s been downhill ever since.
“[This] is not a rebuttal because [I] already told you and you didn’t think about it. [But] try.”
I thought about it. You’re still wrong.
“[On] any given day the amount of money being ‘invested’ is reduced by the amount of money past investments are paying out in dividends or selling of stocks.”
Yes, regarding dividends, which are paid by the company. No, regarding stock sales, which are paid for by the buyer. The difference of commission, however, does reduce net “investment,” but not really, because except for stock sold by the company itself (in an IPO, secondary offering, or stock purchase plan), none of that money actually goes to the company. In other words, NOT stocks sold on the NASDAQ.
“[This] is exactly the amount by which ‘potential’ investment is reduced by the payroll tax… which goes directly that day to pay the expenses of the retired… just like the dividends or stock sales…”
Which is apropos of nothing. Current workers are paying for current retirees, and the excess is going to the general fund.
Try the “Shift” key.
Warren
i tried the shift key. it didn’t help. you still completely missed the point.
Perhaps if you were to remove your hat. 😀
Matthew, you posted this:
” If they are able to do that the SS system is solvent. ”
The conditional “if” that you included in that sentence you posted clearly implies that there are conditions under which the SS system isn’t solvent. There aren’t. Perhaps you intended a different meaning. I can only react to the words you choose to write.
Thanks for reply Joel . Insolvency results from current workers inability to produce enough goods for retirees and themselves. Simple example, if workers can only produce enough food for themselves, and cannot produce an excess to feed retirees, then you have Insolvency. Another example, if there is one doctor left in the country, then it does not matter how many dollars medicare has, that doctor cannot treat anyone. It is all about real resources.
Matthew, SS cannot be insolvent. All workers in the US pay SS taxes from the first dollar, so I don’t know where the imaginary workers in your example come from. If there are fewer workers and their incomes are lower in the future, that will mean that SS payouts to retirees will be reduced. It will not mean that SS is insolvent. If nothing is done to change the financing of SS, then sometime in the 2030s when the trust fund is exhausted, benefits will be cut ca. 20-25%. That’s not insolvency.
Medicare is separate from SS, and so your invocation of Medicare in the context of this discussion is a non sequitur.
Joel you are missing my point which means I am doing a bad job explaining. Here is a better explanation
http://www.forbes.com/sites/johntharvey/2011/04/08/why-social-security-cannot-go-bankrupt/#a393b23619f7
Matthew
I agree that “resources” is what counts. But there is no shortage of resources now or in the projected future (not counting possible effects of global warming which would put us in a whole new universe of discourse.
Even if there was a shortage of resources, people would be in the same situation they have been in thousands of times throughout history. The solution then (in the future) would be the same as the solution then (in history)… share the resources in the most reasonable way possible.
Moses did not invent “Honor your mother and your father” for no reason at all, and Jesus did not remind the people that “it’s all about the money” a thousand or so years later. Even the Neanderthal took care of their aged parents for, i suppose, two reasons: simple gratitude to the parents for taking care of them when they were too young to take care of themselves, and knowing that by taking care of their own parents they made it more likely their own children would take care of them when they were too old to take care of themselves.
It an industrial economy it is no longer possible for people to rely as families on their children being able to take care of them. So Social Security was invented as “insurance” to protect us from the kind of bad luck that was happening all the time to most of the population.
There is nothing on the horizon that would prevent SS from being able to continue to do this as it has done for the last eighty years or so. It is worth remembering, even if some people can’t understand it, that YOU pay for your own Social Security. The details of how the money moves from one hand to another and not important. If you could put the money in a box and have it breed like gerbils over forty years you would not have paid for your own retirement in any more real sense than putting your money into SS for forty years and having SS give you back more than you paid in when you need it. Those who can’t understand this have a mental block. They cannot imagine the results of a whole nation or a government doing what they can only understand in terms of an individual “investing” in a private enterprise.
But it turns out to be exactly the same except that the risk is taken out of the equation. And of course it’s not voluntary… unless, that is, the nation as a whole comes to feel there is a better solution to the problem of insuring that you as an individual will be able to retire at a reasonable age. So far there is no such better solution, even though the enemies of Social Security pretend they have one.\
And that is the trouble with democracy, we can only do what the majority… through their elected representatives… decide, which can be bad if the majority is fooled, or irritating if the the majority is right but “we” think we can do better if only there were no laws against driving drunk or robbing banks…. which in the end is what “the right” means by “freedom.”
Warren
current workers are paying for themselves. current retirees are withdrawing what they paid (saved) when they were workers.
the excess of what they paid was lent to the government and is now being repaid by the government.
there is no meaningful way this is different from a worker paying for his retirement ahead of time by putting his money into a bank or investment and withdrawing it later. even if the enterprise he invests in lends the excess (not being paid out to earlier investors) to the government by putting some of their excess cash in government bonds.
what is different is that the “investor” gives his money to a company which uses part of it to buy “the means of production” and part of it to repay earlier investors (not only dividends and interest, but even the buying and selling of stock adds/subtracts to the pool of available investment in production). All SS does is manage that part of investment which otherwise would go out the door on the same day to those cashing in their “return on investment”…. without the risk. Since SS only collects the part of the money needed to repay the investors, the present investor in SS is free to invest the rest of his money in the investments of his choice…. with the risks and rewards there unto appertaining. You use the vocabulary and ideas that pertain to the individual investor in the market, and can’t seem to bend your mind around the collective effects of something like SS doing essentially the same thing for 200 million people at a time.
“[In] an industrial economy it is no longer possible for people to rely as families on their children being able to take care of them.”
Why is that?
“It is worth remembering…, that YOU pay for your own Social Security.”
That is incorrect, but that is the myth that must be maintained in the minds of the masses for Social Security to be politically viable. That is why that myth is so strenuously defended. The reality is that current payers of the FICA tax are paying for current retirees. That is the definition of a pay-as-you-go system.
When one’s saves his money in a 401(k) or IRA or other such account, that money purchases ownership in a corporation, or is lent at interest to some who will pay it back. Those are real investments.
FICA taxes, however, primarily go to pay current retirees, not to purchase assets. Any excess goes into the General Fund, reducing the taxes required of to fund the current expenses of the government. Instead of paying income taxes or tariffs, we pay in payroll taxes. If, in the future, we need to draw down the “Trust Fund” to pay retirees, then that will have to be paid for by increased taxes on those who are already paying those retirees through their FICA taxes.
Warren
you said all that before, and I answered it before. It made not the slightest dent on your understanding. I hope you will understand why i won’t waste my time talking to you.
and if you don’t understand “why is that?” that families can not count on being able to help each other through bad times… including he bad time of old age… in an industrial economy as opposed to a hunter-gatherer society.. you are just too stupid to be worth talking to at all.
“[What] is different is that the ‘investor’ gives his money to a company which uses part of it to buy ‘the means of production’ and part of it to repay earlier investors (not only dividends and interest, but even the buying and selling of stock adds/subtracts to the pool of available investment in production).”
You completely misunderstand stock and bond purchases if you think that. Stock purchased on an exchange (so, not IPO’s, secondary offerings, and stock purchase plans, but generally stock held in 401(k)’s and IRA’s) does not provide money to company operations. Neither does the purchase of bonds except in their initial offerings.
After the initial offerings, stocks and bonds purchased and sold do not affect company finances. Since the buying and selling of stocks and bonds on the open market must be balanced. A share of stock cannot be bought unless someone else sells it, and the amount the seller receives is simply what the buyer pays minus commissions.
Yes Warren and you oversimplify the effects of stock and bond purchases. First not all companies have issued all their stock, often some is held back and on the books at par. Ditto for the stock that has been reacquired and held as “Treasury stock”. The value of which is directly effected by stock prices. And then there is the possibility of issuing new stock altogether or of strong existing prices for stocks and bonds reducing the cost of borrowing either short or long.
Also the belief that buying and selling of stocks “must be balanced” because any given transaction has a buyer and a seller and so is in that sense zero sum just ignores the fact that all existing issues of that stock are (for most purposes) revalued at the instant of sale of even a miniscule portion of that issue. Lets say we have a new company with 1 million shares issued at a par value of $10. That company is valued at exactly $10,000,000 by the market. If some investor decides to take a flyer and buy 1000 shares at $20 he is out $20,000 plus commission, the seller pockets $20,000 minus what (if anything) he actually paid for the stock (he might have a share awarded at issuance). Meanwhile the company is now ‘capitalized’ at $20,000,000. Which is real value that in many cases can be borrowed on by the company or stockholders. This is how Bezos buys yachts and the WaPo even though his company didn’t actually make any money via operations its first 10+ years.
That is the increased value of Jeff Bezos’s Amazon Stock can only be considered an addition “to the pool of available investment in production”. It is what allows him to buy or launch whole companies.
Anyone who ‘understands’ stock and bond markets as some zero sum game of buyers and sellers gaining or losing on the trade day transaction doesn’t even understand what they don’t understand. Because even the sale of a totally unique art item can and mostly does have an effect on the market for that class of item, however broadly defined. Though the mechanism isn’t as direct as that of a specific issue of corporate stock.
As they say “Everything is simple. If you ignore the complexities.”
Matthew, your Forbes link confirms my statements that SS cannot be insolvent. You were the one who brought out solvency. Not surprisingly, Forbes focuses on the need to grow the economy and increase wages in order to realize currently projected benefits. Not surprisingly, Forbes gives short shrift to Dale’s reasonable proposal to increase SS taxes very modestly beginning now. .
So if your original point was that SS isn’t insolvent and cannot become insolvent, then we agree, and your wording that suggested otherwise was simply infelicitous.
Warren
i really do know that after the initial purchace the subsequent sale of stocks does not directly affect investment (but does indirectly). the point i was trying to make was about the amount of money available for investment which seems to be the point of those who claim that SS reduces “savings” in the sense of savings=investment.
you are still talking about “the stock market” and the individual investor. i am trying to talk about the economy as a whole and the fact that SS does not subtract from either consumption or investment as many people claim.
Bruce
thanks. i think i understood all that too. the amazing effect of a single (more or less) purchase of a stock to create millions of dollars of “capital” is balanced of course by the amazing affect of a single (more or less) sale of a stock to destroy millions of dollars of “capital,” which is the effect, among others, that SS was created to protect workers from to some extent. as you know.
“[The] point [I] was trying to make was about the amount of money available for investment which seems to be the point of those who claim that SS reduces ‘savings’ in the sense of savings=investment.”
Oh, well, never mind then. While FICA taxes certainly reduce what is available to the people paying the tax, it increases what is available to those who receive it. So it’s a wash.
“[This capitalized value] is real value that in many cases can be borrowed [against] by the company or stockholders. This is how Bezos buys yachts and the WaPo even though his company didn’t actually make any money via operations its first 10+ years.”
Not quite. Someone else still has to lend him that money, with the stock used as collateral. It is not REAL until it is realized (sold).
“That is the increased value of Jeff Bezos’s Amazon Stock can only be considered an addition ‘to the pool of available investment in production.’ It is what allows him to buy or launch whole companies.”
No. It allows HIM to borrow from someone else who has the money, but it does not increase the amount available.
No. What you are saying is that all cash and cash equivalents anywhere, no matter how held and at what level of risk are all part of “available investment in production”. And that it doesn’t really matter what the credit of the borrower is. Jeff Bezos has the ability to attract money parked on the sidelines and not directly invested in productive capital away from those sidelines. Taking to the extreme you are arguing that cash in a mattress and gold buried in a backyard are all part of the investment pool ANYWAY and that there is no net change to that pool if Bezos uses his credit, itself simply based on increased value attributed to his stock holdings IN PRINCIPLE (it is not like he could see out those holdings without taking a huge loss), to inject a few hundred million into say the media market. As opposed to what I think is a more natural understanding that he is moving non-productive capital into the productive pool.
I don’t have the time or energy to unpack this further, I’ll leave judgement up to the AB jury.
Bruce
i am not an expert. not even a pretender. but speaking as a memeber of the jury, all “money” is nothing more than the faith that someone is going to pay you back. i.e. you do something and someone gives you money for it. you expect that someone else will do something for you in return for that money.
so if Bezos can borrow “money” beause he has stocks (collateral) the stocks are performing one of the functions of money. so my vote is that while Warren is more or less right, he doesn’t really understand money in the sense you may be talking about it, and in the sense that i almost always think of it.
beware Warren, i very much have a more flexible way of looking at things than you seem to have. sometimes your idea of “precise” is what is called for. sometimes what i call “flexible” is what is needed.
Coberly I can borrow money on a Makita drill set. Or in extremes on my clear unwillingness to be beaten up if I don’t come up with $20 next Friday for $10 today. With my “lender” not particularly concerned with exactly how I “earn” that money. And it is still possible in this day and age to “sell/lend” your 12 year old child to a sex trafficker.
At some point arguing implicitly that anything “performing one of the functions of money” is just money goes far beyond arguing about M1, M2, and M3 to postulating M-Mush.
Now I have been reading Wittgenstein off and on since 1977 and pretty much buy into both the “meaning is use” and “meaning is family resemblence” and so are not ENTIRELY determinable in practice. That doesn’t mean I get to get away with stating “Warren is a genius” based on my own definition (as if). Word meanings do have boundaries and there are some things that have credit value that are not in fact money.
“Jeff Bezos has the ability to attract money parked on the sidelines and not directly invested in productive capital away from those sidelines.”
Certainly. And while that is a good point, I doubt that that increase is more than a small fraction of the increase in his stock valuation.
Warren we are not talking “increase in stock valuation”. If anything Bezos putting up his stock as collateral for a loan exposes the total valuation of the stock (for all holders) to the risk of some sort of forced sale. Because Bezos is a big enough player in Amazon that any stock backed play creates negative leverage on value.
I was responding quite specifically to this argument BY YOU where you responded to this:
by asserting that after issuance purchases and sales could have no such effects on that pool.
Except and unless the principal stockholder can use his combined ownership and directorship controls to have the company acquire other companies based either on his equity or the effective equity of the company. The mechanisms are not straightforward but in general if the stock price of a publicly held company doubles, even when that is the result of a small in percentage terms investment, then the Directors of that company have that much more financial room to maneuver. For example the pressure to pay out earnings in dividends will diminish if existing investors are getting a gain in valuation. This isn’t some obscure point of finance, for decades people have made investment choices between dividends and valuation, between clipping coupons and taking a flier. And some companies exploit both. Take Apple’s decade long strategy of stock buybacks which pay ‘dividends’ to those who take the offer and provide ‘equity growth’ to those who refuse. And most of that financed by BORROWING on cash reserves parked overseas.
Which I guess is to say that both equity and earnings can be leveraged into “the pool of available investment in production” without being directly expended in a zero-sum fashion.
Bruce
absolutely. one needs not get carried away in order to see the “moneyness” of something they haven’t previously thought of that way.
i would add something to what i said about “money” above: creating money of any form and using it to induce people to do something they otherwise would not have done is one of the more important functions of “money.” and of course creating too much “money” will rather than induce people to do something productive, may just lead them to expect that the money you give them will not buy as much as it did yesterday. this is the problem faced by the Fed. i don’t suppose this is very surprising to anyone, but it strikes me that it is a way of looking at “money” that even the Fed is not always alert to.
so i am not saying “everything is money.” i am saying that some things are so money-like they need to be considered when asserting positively, as someone here did recently i think, that something is not money. which is what i thought you were doing when you pointed it out to Warren.
Warren
i don’t understand your last reply to Bruce. I don’t think he was arguing that attracting money from the sidelines increased the value of his stock… except perhaps to the extent the borrowed invested money leads to a more productive company and an increase in the value of stock.
i would suggest that the money-ness of his stock allows him to borrow another form of money which is more generally acceptable in trade on the markets where he buys the things he needs to produce more goods and service which he sells for more of what you would call money.
i don’t think we have much disagreement about what happens, just about what you are willing to call it. Not to offend either you or Bruce, I don’t need to call it “money,” I just thought it worth pointing out that it sure acts a lot like money.
i’d even risk admitting this may be the basis of an argument against my argument that SS does not subtract from the money available for investment… but I am not at all knowledgeable about how the big money people play the money game. I would only add that the money game is too risky for ordinary workers to trust the children’s milk money to it.
Bruce
you know a great deal more than i do about this. i actually had something much simpler in mind.
when a person buys a stock he is expecting to sell it later at a profit. even if this does not directly affect “investment” it does so indirectly and it is the reason people buy that initial offering…. they expect to sell it later to someone who expects to sell it later…
but at the time he sells the stock, if instead of turning around and buying another stock, he decides the time has come to use the cash to buy groceries in retirement, he is doing … after many years… exactly what SS does on a daily basis… removing from the pool of money available for investment and using it to feed and house the elderly (himself).
not a big sophisticated deal… just trying to answer those who claim that SS “destroys savings” by which i hope they mean “reduces the money available for investment” because if they mean “savings” they really don’t understand what savings means… probably because they learned a really o truly o technical definition when they studied economics.
kind of like “work” means something different to a physicist and someone stuck in a cubicle all day. except that the physicist never confuses the two, and Nobel winning economists cross their fingers behind their backs.
Okay. But then nothing I posted in this thread was actually a response to anything of yours. I wasn’t attacking your ideas simple or not, I was responding to a simpleton, err a simplistic argument about the relation of the stock market to the pool of investment capital.
And on that point your claim in para three is wrong and the Simpleton is right. Selling stock to buy groceries does not and cannot effect the pool of investment capital. No single transaction at the retail level will do that, it is like trying to change the path of the Juggernaut by throwing a feather at it. On the other hand if Warren Buffett decided to dump his holdings in Coca Cola or Burlington Northern and Santa Fe (which BH pretty much owns outright) then you would get a little more than just “a ripple in the Force”.
Austrian types of the Von Mises variety may believe you can just map micro up to macro, that buying and selling anything is just like trading sheep in the Tyrolean Alps with gainers always offsetting losers one to one. But it turns out that once you scale things up to world levels and add things like secondary trading markets that things get more complicated than is imagined in the first chapter of an Econ 101 textbook.
Which may sound and actually be gibberish but was never directed at your argument to start with.
Bruce
i didn’t think that you were attacking me, or even disagreeing with me. i was just trying to be clear that your very good discussion about the stock market went into things i had not contemplated when i made my very simple argument.
i would say, however, that i don’t think any ONE act of cashing out one’s investments (or part of them) affects the pool of money available for investment, but that 200 million of them a month probably does add up. And all i was saying was in response to some Nobel economist who claimed that SS reduced “savings,” a point that is repeated by the enemies of SS and those who believe them.
as a matter of fact i believe that there is already far more money available for “investment” than can be absorbed by useful investments which is why we get the casino investment “products” that produced the last great banking catastrophe. so i do not imagine that my simple point is an exact and comprehensive analysis of the “availability of funds.” In fact that’s why i began my last comment with “i don’t know as much as you do…” or words to that effect.
or, to put it another way
the money people do not put into the stock market because they put it into their social security tax…
has no more affect on the availability of money for investment
than the money investors take out of the stock market to buy things with.
or
those people who are just sick about the money they “could have” invested “if only” they didn’t have to pay the social security tax mostly spend more money on champagne in a year than they pay in social security taxes but they never say how evil SS is because of all the champagne they couldn’t buy because the money went to SS
and if you are not in that class… that is, if you have no money left to invest after paying your SS tax, you can’t afford to risk your retirement on the stock market. (as you would have to if there was no SS).
or lose it to inflation by investing in “safe” investments.
I have never made the argument that FICA taxes reduce investments. They can certainly reduce them for some individuals, but some other individuals increase their investments because they are receiving Social Security. People can buy less because they are paying the tax, others can buy more.
But that has nothing to do with the false assertion that one is paying for his own retirement income through Social Security. One is paying for current retirees. And future taxpayers will pay for his.
Warren
it’s good that you have not made the assertion that SS reduces the pool of “savings” (investment).
now if i could get you to see that there is no meaningful difference between “the worker pays for his own benefits” and “the worker pays for someone else’s benefits and someone else pays for his” we will have made real progress.
actually there is a difference, but first you have to understand that there is no difference, then you may begin to understand why “pays for it himself” is both the correct way to look at it, and is important.
to begin, think about what happens when you put money in a bank and withdraw it years later with interest: since the bank uses your money by giving it to other people (at interest), what is different about that from SS giving “your” money to someone else (to pay them back with interest what they put in the bank years ago) while they are waiting for you to come back and withdraw “your” money, which the bank will get from someone else.
if you think it’s “ownership,” what is the important difference between the government crediting your “tax” against your future “benefit” (that is “promising to pay..”… and you getting a “promise to pay” from a bank that only guarantees it’s promise because the government promises to pay in case the bank defaults, or you getting a not even promise to pay certificate from the company you invest in, but you hope someone else (note someone else) will give you money for when you need “your” money back.
think before you answer please. i get so tired of reading the same assertions again and again. just as i get tired of writing the same explanations (assertions) again and again.
a grammatical lapse in the foregoing may create some confusion, but should be manageable by anyone actually thinking about the argument.
Warren
when you put your money in the bank, or buy a bond, or a stock, or an insurance policy, or pay your FICA “tax” you are paying for a claim on money in the future.
in principle you do not care what the entity does in order to meet your claim, but you do care how reliable their “promise” is.
when you collect that future money, you think you have “paid for it yourself” except for some reason in the case of FICA, you insist that you paid for someone else (evil tax) and then collect evil welfare when you get the money back.
so I guess that when i put my money in the bank i am paying for your house. and when someone forty years from now puts their money in the bank (either to repay the money they borrowed fo build their house, or simply in return for their very own claim on future money) they are paying for my withdrawal on that day.
“[If I] could get you to see that there is no meaningful difference between ‘the worker pays for his own benefits’ and ‘the worker pays for someone else’s benefits and someone else pays for his’ we will have made real progress.”
But that will not happen, because it is a lie.
If it were true, the FICA taxes paid by the current retirees would have funded the Trust Fund sufficiently that we could cancel the program and have enough in there to pay them all that is due. Also, the SSTF would not be invested in government bonds, which only reduce the income taxes required to fund current expenses of the government. Rather, they would be invested as countries such as Norway and Saudi Arabia invest their sovereign wealth funds.
The reality is the first recipients took money from the first payers, and when those payers retired they took money from their successors.
Let me take your bank deposit example. The person to whom the money is lent — for a mortgage or car loan, for instance — is the one required to pay it back. With Social Security, the people to whom the first payments were given got far more than a normal return on the pittance they might have put it. They got money for which they did not pay.
Now, let me address the ownership issue. Actually, I will have the Supreme Court address it:
2. A PERSON COVERED BY THE SOCIAL SECURITY ACT HAS NOT SUCH A RIGHT IN OLD-AGE BENEFIT PAYMENTS AS WOULD MAKE EVERY DEFEASANCE OF “ACCRUED” INTERESTS VIOLATIVE OF THE DUE PROCESS CLAUSE OF THE FIFTH AMENDMENT. PP. 608-611.
(A) THE NONCONTRACTUAL INTEREST OF AN EMPLOYEE COVERED BY THE ACT CANNOT BE SOUNDLY ANALOGIZED TO THAT OF THE HOLDER OF AN ANNUITY, WHOSE RIGHTS TO BENEFITS ARE BASED ON HIS CONTRACTUAL PREMIUM PAYMENTS. PP. 608-610.
(B) TO ENGRAFT UPON THE SOCIAL SECURITY SYSTEM A CONCEPT OF “ACCRUED PROPERTY RIGHTS” WOULD DEPRIVE IT OF THE FLEXIBILITY AND BOLDNESS IN ADJUSTMENT TO EVER-CHANGING CONDITIONS WHICH IT DEMANDS AND WHICH CONGRESS PROBABLY HAD IN MIND WHEN IT EXPRESSLY RESERVED THE RIGHT TO ALTER, AMEND OR REPEAL ANY PROVISION OF THE ACT. PP. 610-611.
https://www.ssa.gov/history/nestor.html
With ownership of a stock, bond, or annuity, however, one does have the rights of ownership. That ownership, except for some annuities (not all), does not end with the owner’s death, but becomes part of the estate he passes to his heirs.
Warren first Nestor doesn’t have the import you think it does. It is not like Coberly or I have never heard of it.
Second you might “own” a stock. But that doesn’t mean it will be worth anything at all long term. If the firm goes to bankruptcy stockholders are junior to bondholders who are generally junior to holders of the firms accounts payable. If you think that pension funds that are run like foreign sovereign funds are somehow more secure because ‘ownership’ than I advise some research on the looting of various pension funds both public and private. You can start by Googling Central States Pension Fund.
Third it is not in fact “reality” that first recipients took money from first payers. Saying that displays a fatal ignorance of the relation between Social Security Title 1 (which funded all monthly payments from 1936 to 1940 and the majority of payments until 1950) and Social Security Title 2, which is what we know as Social Security today and which NEVER ran negative balances. Largely because it started charging payroll tax and building up reserves in 1936 and was not scheduled to make ANY payments until 1941 (in the event payments started in 1940). This isn’t to say that there wasn’t an element of pay-go from the beginning, but there were not in REALITY the kind of legacy beneficiaries drawing Title 2 funds out while never having paid in that your narrative requires.
Now how could you know any of this? Well by having been a regular reader of this site since 2009 and the publication of the Angry Bear Social Security Series. (in 44 parts). Or maybe by asking questions of people who despite your beliefs actually do know stuff about this. Including the true import of Fleming v Nestor. Which basically puts Social Security on the same level as most Defined Benefit Pension Plans. Social Security benefits can be modified or eliminated by Congress without it being a “taking”. Just as a pension plan can be wiped out during bankruptcy. But that is just another way of stating the power of Congress. Which can establish, enhance, diminish or eliminate programs at will.
Your problem is that you know, or think you know enough to be dangerous. And translate that in your head to think that your arguments are therefore deadly. Mostly on the grounds it seems that “hey these guys are just ignorant of this table or that website at ssa.gov/history”. You would do better to put these kind of claims in the form of a question like “What then about Nestor?” Rather than a Monty Pythonish style “I have run rings around you logically”.
And just a word of advice. Don’t recklessly throw around the word “lie”. You have not demonstrated the subject mastery needed to make that kind of judgement. Plus it is rude to insult other guests in someone else’s house. Particularly when it is oh so easy to kick you out of the party and keep you out. Dale may be wrong on occasion, and certainly is guilty of a certain stubbornness in pushing his argument. But he doesn’t lie.
Warren
you should not call me a liar. it make me unpleasant.
the rest of your note just shows that you can’t wrap your brain around something that is new to your way of thinking.
as for the earlier beneficiaries of SS, you do not object when those who get in on an IPO sell their stock at a large profit to those who come in later.
the fact is that SS is insurance. those early beneficiaries collected insurance because they needed it. their savings and jobs had been wiped out by the depression. their benefits were fully covered by the premiums paid by the slightly less early workers, who ultimately fully paid for their own benefits as has everyone since then.
as for “investing” the Trust Fund, or requiring the Trust Fund to be able to fully pay the benefits of current workers, that’s nonsense.. The Trust fund is only meant to smooth the flow of money through the times that less money comes in than goes out. this happens on a small scale every month. on a larger scale during a depression, and is now happening on an even larger scale to smooth the “generational inequity” resulting from the baby boom.
but this is all too much for you to know, let alone think about.
the quality of your note to me does not encourage me to spend any more time trying to help you think more clearly.
And let me address Matt’s point from a new angle.
Assume that society has some responsibility to the old, the disabled, the spousal or child survivor. That is we are not going to allow them to outright starve. This suggests that as a group and so per capita will get some share of future productivity. That share and its distribution might be controlled by pure charitable methods, such seems to be the Libertarian and Right choice or it may be by some sort of formula based on life time earnings on top of some minimum. Which is the Social Security model. But either way we are talking about a slice of future productivity.
Now under the current system the United States is devoting just under 5% of GDP to Social Security benefits. Which for many to most beneficiaries represents at least 90% of their income. Recipients of Social Security currently represent about 17% of the population. Is 5% of GDP too high or too low for basic support of 1/6th of the U.S. Well that is a question and we can debate it. I don’t see any signs that it is crippling the economy or keeping full time workers from buying needed goods compared to the SocSec beneficiaiy population..
Under current projections the amount of benefits scheduled to be paid out under Social Security looks to increase from 4.9% of GDP to around 6.2%. On the other hand the beneficiary population projects to increase from 17% to 25%. Which pretty much keeps the distribution steady state when expressed in per capita terms, if anything the beneficiary population is going up slightly faster than the projected GDP share.
Now I suppose there is an argument that for some reason we cannot in the future afford to supply 6.2% of GDP to 25% of the population as opposed to 4.9% to 17%. But this argument entails actually reducing per capita income share of the total economy for seniors, the disabled and survivors. And suggests that the 75% of the population that will not be drawing benefits gets a proportionately bigger slice of the overall pie than today.
Which is the exact opposite of the standard argument about ‘intergenerational warfare’ pushed by the Peterson folks. They insist that 6.2% represents theft compared to 4.9% where really on a per capita basis it is a lot closer to share and share alike.
Which in my mind is the thrust of Coberly’s argument about caring for the old. Yeah it may be a burden. But does that mean grandma gets her slice of pie reduced to some stale crust while the ‘productive’ get their full slice and more? Or would we all be better off by concentrating on growing the economic pie?
thanks Bruce
it’s also why i insist that workers pay for it themselves. that should make it harder for Peterson et al to claim they are a “burden” on the rest of us.
since i don’t hear anyone actually advocating soylent green or the ice flow solution, those too old to work will always be a “burden” on the rest of us. unless of course you count the money they paid in (iin their turn) as “they paid for it themselves.” we seem to be willing to do this when the money they paid in went into a bank or stock or bond, but we can always find some bogus reason to claim that oh, no, “they” did not pay… because some retirees in the forties paid less than they got… though not only the the not yet retired who were paying (directly) those “unearned” benefits themselves pay for everything they got, they also got everything they paid for.
people like Warren can always find a “reason” for what they believe. all they have to do is ignore “the rest of the story.” even when someone reads it to them patiently (stubbornly).
If you do not like the true word LIE, I will employ the next closest true word: MYTH.
The fact is, if everyone was paid out of investments he made, the SSTF would have sufficient funds to end the program and pay off everyone who has paid in. I do not pretend that private or public pensions are any safer, but that if people were paying for their own retirement through Social Security, then the SSTF would invest as sovereign wealth funds do. Furthermore, each worker would have his own account that could not be reduced or eliminated by acts of Congress.
If those early recipients were not getting too much, then later recipients were paying too little to maintain the SSTF at a level that could pay them back. Furthermore, the excess was “invested” in loans to the very people buying the bonds with their excess FICA taxes, but those bonds will have to be paid by their children and grandchildren.
“As for the earlier beneficiaries of SS, you do not object when those who get in on an IPO sell their stock at a large profit to those who come in later.”
Why should I? The original owners sell voluntarily, and those to whom they sell buy voluntarily. Do you want to make Social Security voluntary?
Bruce, I am not suggesting we end Social Security, but only to stop propagating the myth that we are paying for our own retirement.
Warren you have tunnel vision. You are not even trying to understand what Coberly is arguing but instead deploying concepts from a Finance for Dummies Book and thinking we are all gobsmacked by your brilliance.
Let me try using my own line of argumentation. Future productivity depends in large part on current capital base including past investments in hard goods like highways, bridges, and electrical generating dams. But also such softer goods as the internet, the past protection given to this country by soldiers and sailors and just about anything else you could name. It is a common trope that we are all building a future America, each making our own contribution, heck some of us just by bearing and raising the future labor force. Not every bit of our current hard and soft capital base can be attributed to any specific capital or labor input, the whole thing is to some degree synergistic and we have every expectation that future America will have higher levels of total production (though perhaps in different balance of hard and soft goods) than today. The question is whether Americans as a whole have some claim on that future growth even where their contributions might be in conventional accounting senses indirect. I mean what price is there in raising your children to be honest and productive? Or reverent, brave and clean? (If you were ever a Boy Scout). Not everything that makes America great, not even when restricted to material terms of greatness, can be said to have been fully compensated in real time to the people contributing to that future greatness.
Social Security is a recognition that everyone who works doing whatever deserves some credit for the future results of that work taken in toto. Particularly any current contributions that enable improvements in future productivity. Which as noted may not be material at all, and in any event not individually trackable in a way that can be calculated as individual ROI. Even if you could isolate the I. So instead Social Security simply rewards those contributions by crediting workers AS A WHOLE for the TOTAL INCREASE IN LABOR PRODUCTIVITY by setting retirement disbursements based on the GROWTH IN REAL WAGE over your lifetime. Now these disbursements are not set evenly, instead in a bow to neo-liberalism they are set in proportion to the individual’s lifetime wages. Meaning that everyone benefits for the TOTAL INCREASE even as there is an assumption that individual lifetime wages are a rough proxy for your particular share. That is to say your total lifetime wages help determine your proportion of the pie even as the size of the individual slices are larger or smaller depending on the total size of the pie to be sliced.
Now you might not consider all of these actual contributions to future productivity to be “investment” as defined in “Finance for Dummies”. Well tough shit. We as a society have decided that future dependents whether retirees or the disabled or survivors of workers deserve a certain percentage of the total pie. Each. Even as the percentages are not equal. Still when taken as a cohort Social Security beneficiaries will get that total percentage (to put numbers on it 6.2% by 2050). But no matter by what formula you use to determine the exact percentage of the total pie that the cohort receives or what formulae you use to divide up that percentage among all the members of the cohort everyone inside and OUTSIDE the cohort benefit by a bigger pie.
You apparently don’t see the value in starting from total pie and then allocating percentages by cohort based on the assumption that the cohort in question contributed in their various ways to the total pie. Apparently on the basis that the only “investment” worth counting is the percentage of individual wage being tapped. Rather than a metric that takes into account other inputs, many not quantifiable. But rather than argue the equity you fall back on the definition of “investment” found in the back of your Dummies book. And then insist that any other way of looking at “investment” is either a ‘lie’ or a ‘myth’. Well nobody made you God-Emperor of Dune. (Though some mean people might concede ‘Sandworm’).
SSTF is not a pension fund. And SocSec is not fundmentally identical with the SSTF or its putative return. Instead it is an understanding that current workers have a claim on a certain proportion of future productivity based on their TOTAL investment contribution to future hard, soft and human capital. If future workers don’t screw things up and instead use this hard, soft and human capital PRODUCTIVELY then the result will be a bigger pie. And current workers will get a share. If future workers screw things up, say by putting up labor productivity numbers that are a third or more less than those routinely put up in the 60s and 70s, then the future pie will be smaller than it otherwise could or should have been. Meaning that current workers may have to be content with their percentage of that smaller pie. But the argument that the crappy numbers that future workers are projected to hit justify shrinking the percentage of the pie of those who put in better numbers their whole worklife is to turn equity on its head.
Want to solve Social Security ‘crisis’? Hit labor productivity and real wage numbers that were standard 30 years ago. Which may require being a little proactive in demanding the same labor share as before. Or in other words just let millenials get off their lazy asses and produce like Greatests, Silents and early Boomers did and everything solves itself.
In what way would you limit the power of Congress? To put this another way exactly how would this “own account” be insulated from the logic applied in Flemming V Nestor? Your cite by the way.
Not only that but in every case I am familiar with proposals to replace Social Security with ‘personal’ or ‘private’ accounts end up requiring life time annuities and eliminate any possibility of actually passing those accounts to heirs. The math never actually works for any reasonable rate of contribution. You have fallen victim to the old “Sell them the sizzle before they get a look at the steak”.
And in a final blow, it is impossible to deliver a better result than simply taking the payroll tax hit of the current actuarial gap. Whether you phase in FICA increases or take them in a single shot you get a better result at a lower cost. Every time for the overwhelming percentage of participants.
The base problem here is one identified by economist Dean Baker and put forth in 2005 in the form of his “No Economist Left Behind” Challenge. In my formulation: there is no way to produce needed returns on investment via private accounts using the economic projections of Social Security. On the other hand any combination of economic projections that would produce those needed returns would also reduce the actuarial gap faced by Social Security. In other words improve its own rate of return. And nobody I know has put forth a plan that wins this particular race. Not if it needs to work across the board for all workers with personal accounts.
That is there are economic models that would allow private accounts. For example Trump’s fantasy of minimum 4% GDP growth forever via the miracle of tax cuts. Well it it happened one side effect would be to overfund Social Security as currently configured. I put this all in the form of a jingle in around 2000.
“If Privatization is Possible, it Won’t be Necessary. If Privatization is Necessary, it Won’t be Possible”. And NOBODY has shown me (or Dean Baker for that matter) numbers that disprove my jingle or meet the NELB Challenge.
I get all that, Bruce, although your assertion that “they are set in proportion to the individual’s lifetime wages” is, perhaps not a MYTH, but an INACCURACY. On the low-consistency side, you have to be taxed sufficiently (40 quarters). On the high-consistency side, only 140 quarters are counted, even though a constantly-employed person could pay in for 200 quarters (starting work at age 17 and retiring at 67). On the low-income side, your dollars taxed are credited at four times the value that the top earners get on their last dollars taxed.
https://www.ssa.gov/pubs/EN-05-10070.pdf
Then there are the spousal benefits.
So although it IS “proportional,” that is not the WHOLE truth.
Nonetheless, your argument boils down to “society owes these people.” That’s fine. I agree. But I also think that society is perfectly capable of doing that without the government. The government has no more money than does “society.”
But you also seem to miss my point. I am NOT arguing for privatization, or even for personal, inheritable accounts. I am simply saying that, if the assertion that we are paying for our own retirement were true, then that is how Social Security would look (personal accounts, inheritability, etc.).
If I say it is “in proportion” and you agree that it is “proportional” then it is true. That my shorthand does not capture every jot and tittle in the formula does not make it a partial truth.
And in both your comments this morning you just fall back on right platitudes. “I think society of perfectly capable of doing that without the government”. Perhaps, but historically it did a piss poor job. Which is why we instituted New Deal and Great Society programs to start with. Private charity sounds good but tends to get targeted to affinity groups, often co-coreligionists, and with accompanying religious tests. Or at least requirements to set through prayers and conversion attempts before you get a meal or services.
Ditto for your comment on minimum wage. The evidence is NOT such that you can just blithely assert “people lose their jobs”. Nor I might add is it necessarily true that lost jobs (to the extent they eventuate) actually equate to net loss of labor share. A topic that has ALSO been one much discussed at Angry Bear.
Which is perhaps your greatest problem. You are coming into a forum that has existed for many years in blog terms and just setting yourself up as a truthgiver. As opposed to some sort of truthseeker. But are reading your truths out of the economic equivalent of the Golden Treasury of Bible Stories. And then wonder why you get mocked.
BTW I am not missing your point. I am disputing the arguments and assertions you put forth thinking they are beyond objection. They are not. Particularly your framing. There are different ways of “paying for our own retirement”, they are not limited to personal accounts, and no proposals for personal accounts that I have studied (and discussed here at AB) actually provide for personal control of those accounts, individual stock ownership, or except in extremely limited circumstances for inheritability. All that is a fantasy version. Or perhaps you would like to point out an actual published plan that matches? And works? Ferrara? Posen? Bush Option B? LMS? Chilean? Galveston Plan? Diamond-Orszag? All of these have been examined, often after presentation by people chumped into believing they could or even did work (Chile, Galveston) and all fell apart under examination. Yet here you are again just pimping yet another generic version and insisting that is how retirement security “would look”. Well no it wouldn’t. Neither hope nor handwaving is a plan. And your arguments rely on both.
“Want to solve Social Security ‘crisis’? Hit labor productivity and real wage numbers that were standard 30 years ago. Which may require being a little proactive in demanding the same labor share as before.”
I assume you mean productivity GROWTH numbers.
That may be a problem. Although I do not concur with Thomas Picketty’s conclusion (he’s using the wrong growth rate) or his recommendations, the data he presents is extremely valuable, and the book is definitely worth the time to read.
He makes the extremely important observation that the 20th century is the historical anomaly, not our current (relatively) slow-growth, low-inflation economic environment. In fact, he points out that, historically, we are STILL in a fast-growth, high-inflation environment, and suggests that growth may slow even more. The reason emerging economies are doing so well is only that they are catching up, being pulled along in the wake of those countries that went before them.
And the reason those countries (Europe, Canada, and the United States) did as well as they did was the disruption caused by the wars and depression of the first half of the last century. Those shocks are wearing off, and we are returning to historical norms of growth and inflation.
“Or in other words just let millenials get off their lazy asses and produce like Greatests, Silents and early Boomers did and everything solves itself.”
I hope that was a joke. I know it is a little out of date, but please read The Big Squeeze: Tough Times for the American Worker.
I do agree that we should try to get labor share back. The question is, with the excess of labor available by outsourcing or by employing illegal immigrants, how do we do that?
If we just jack up the Minimum Wage, people lose their jobs to outsourcing and illegal immigrants. (Black employment, the canary in the coal mine, dropped immediately following the 2007 increase. White employment followed a few months later.)
No, I think Coberly’s idea is better, even though he is overly optimistic in thinking wages (especially those subject to the FICA tax) will increase.
“Perhaps, but historically it did a piss poor job.”
Excellent. Why is that?
“[Perhaps] you would like to point out an actual published plan that matches?”
Never said there was one. Again, that’s not the point of anything I have said. The point is only that workers are NOT paying for their own retirement, not that I have a plan in which they really would be.
Warren
even if wages do not increase.. especially if wages do not increase… workers are going to need to be able to save enough to retire. Social Security offers the only secure way to do that.
If wages don’t increase, workers will be poorer, and they will be able to save less, so they will have to retire on less. That is a hell of a lot better than not being able to retire at all. Or to be unable to work and have nothing at all to live on.
i hate to make this personal, but your problem is that you cannot free yourself from your one sentence at a time formulas for the glorious pfree market salvation of us all long enough to look at the whole picture.
not even close.
Bruce’s justification of SS in terms workers non-financial contributions to growth… or just general economic adequacy… is perfectly correct and would apply just as well to a “socialist” tax and welfare plan for old age pensions. i have no problem with that.
but politically, based on American attitudes and experience, i think it is better in America to base the necessary old age pensions on worker contributions. i cannot make that system conform to all your prejudices about what “real” economics teaches. like most true believers, you are an ignoramus and will remain one for the rest of your life. you can pleasure yourself by nitpicking all the”lapses” in my or Bruce’s argumentation… but the fault is not with SS — it works and works well — but with my (at least) inability to say everything at once and anticipate your perverse objections in detail.
god knows i tried. but i used to work with insane people, and i know my limits.
Again, Coberly, NOT THE POINT. I am not disagreeing with your assessment of Social Security’s benefits to poor retirees, only with your assertion that people are paying for their own retirement or saving for their own retirement through Social Security.
I am not arguing for the elimination of Social Security, and I even agree with you on how best to cover the projected shortfall.
The only problem I have is with the assertion that, through Social Security, workers are paying for their own benefits. I understand that this is a necessary “suspension of disbelief” to make Social Security politically viable, but I do not think that prevarication is necessary for those of us who read this blog.
Warren. One I warned you about “lie”. It doesn’t get any better to call it “prevarication”
By your own account your “only problem” is the assertion that “workers” are paying for their “own benefits” because the CASH contribution of any SINGLE WORKER does not meet YOUR DEFINITION of adequate “investment”. On all other points you have surrendered.
I don’t accept your limited understanding and definition of “investment”. Because I don’t believe it captures the entire “contribution” being made. If you combine your narrow definition of “investment” as limited to the cash deduction from paychecks with my definition of “contribution” of inputs to future productivity made by workers but not entirely captured by corresponding contemporary wage earnings then it is fair to say that workers are “paying for their own retirement” via the combination of Warren “investment” and Webb “contribution”. It is also fair and true to say that the mechanism by which this combined “investment” and “contribution” is returned to workers for their “retirement” is Social Security and its formulae for adjusting initial benefits by overall growth in the total wage pool.
You apparently don’t like or accept any framing that would recognize Webb “contribution” as a portion of “paying for their own retirement”. Well that is fine. But it doesn’t make me a liar or Coberly either.
In the end you feebly fall back on “NOT THE POINT”. Which basically is to say that the only relevant framing is YOURS. If OUR formulation doesn’t match YOUR narrow understanding and definition of “investment” then we are self-evidently wrong lying prevaricators. Well it is a free country. And you have a right to your opinion. Which doesn’t mean that every house party is open to everyone without limits. And I can say that this (non-unique) host of the house party we call AB Comments is getting a little tired of a certain blow-hard self invited guest. Who insists on his right to shape the discourse around his own understanding and dismiss with prejudice anyone who disagrees. No, NO, NO!!! That is MY job. Should I choose to exercise it.
Which exercise is almost certain if you continue to call my guests and friends liars and prevaricators.
Well, Bruce, as I said, to make Social Security politically viable, we need folks like you to believe.
Excellent! I accept your surrender!
see,
i go to the butcher and order a ham to be delivered next saturday. i pay him today. and on saturday he deilvers the ham. i paid for it myself.
i don’t need to know that the butcher took my money and bought a ham from his supplier and delivered it that very day to someone who had ordered their ham last week. and i don’t care that fifty years ago when the butcher was just starting out took the money from his first few customers and and used it to buy hams and deliver them to some families he knew couldn’t pay because… well, because they had lent him money for his first business and he went bankrupt and never paid him back. but as long as his customers kept coming in to his new business, he was always able to buy the hams in time to deliver them to the customers who had paid for them.
now, Warren would say that I did not pay for my ham. he would say I paid for the last customers ham, and someone else paid for my ham.
moreover he would say that because those people fifty years ago they “did not pay for” then every customer since has “really” been paying for those people’s hams, and the hams of the new customers are “really” paid for by the customers who come in after them.
this is of course nonsense, but it’s what you come up with when you have a religious conception of what “paid for” means that does not correspond to how people actually pay for the things they buy in the real world.
oh, i guess i need to add that
if i order my Christmas ham in March and pay for it then, i have still “paid for it myself” if the price of hams goes up between March and Christmas.
presumably the “time value of money” in March compensates the butcher for the price rise between March and December. In any case poor Warren, the guy out on the street corner with the signboard, can’t claim that my ham was “really ” paid for by the customers who come in in December and order their Easter hams at the December price.
this is the way ordinary buying and selling works. but don’t try to explain it to Warren.
and, of course, God help you if you try to explain that if the butcher gives a few hams away to promote business, or just because he knows some poor people who wouldn’t have much of a Christmas without his gift… that nevertheless I paid for my own ham myself.
this is entirely beyond Warren’s cash on the barrelhead level of understanding, and no doubt violates his religious principles. which i think are summed up by “money is god and Ayn Rand is it’s prophet.”
Ayn thought charity was a crime and was no doubt pretty sure that if you bought a stock and the seller used your money to buy a house, you “really” paid for his house, but not of course for the stock. and when you sell the stock to buy groceries, it’s “really” the buyer of the stock who is “paying for” your groceries. because as we know it is important for business to use only marked bills so you can know where “your” money is “really” going.
this is common enough in primitive… very primitive… societies who might set up a stone to remind them of “god” and end up worshipping the stone itself as though it IS the god.
warren and Ayn worship money.. the hard stuff… and have no concept of how it actually works in a complex economy.
Fine, Coberly, we need people like you to believe.
Yes, Warren
I believe, when I order my Christmas ham and pay for it when I order it, and it is delivered in time for Christmas, that I paid for it myself.
I don’t care how the butcher manages his finances.
And I don’t care what ignorant savages think they know about money.
If you die before Christmas, does he get to keep the money and not deliver the ham?
If he decides to retire, does he have enough stock to get you a ham, or enough money to refund your money?
Whether you care about his finances or not, he is legally obligated to provide you with a ham or to refund your money.
“One of the most important reforms the twenty-first-century social state needs to make is to establish a unified retirement scheme based on individual accounts with equal rights for everyone, no matter how complex one’s career path.” – Thomas Picketty, “Capital in the Twenty-First Century”
not sure what this is supposed to mean:
is Picketty the voice of God on retirement policy?
does “individual accounts” mean the same as Bush’s “personal accounts” i.e. stock market based? or does SS”s “i paid for it myself” count?
otherwise, i think SS meets Pickettys formula (except perhaps for “social state”) and the need for the people to recognize that they really do need to pay for it themselves, and they need to tell that to their Congressmen and President. the cost of paying for it themselves amounts to an occasional raise in the payroll “tax” of about a dollar a week per year.
The SSA says not:
“The current Social Security program is a defined benefit social insurance program. A worker and eligible dependents receive monthly benefits based on a formula that takes into account the worker’s earnings history. Financing of the program is pay-as-you-go. The payroll contributions of workers each month help provide these benefits to eligible retirees, disabled workers, and survivors in the same month. In contrast, individual accounts provide benefits to each beneficiary using: (1) their own worker contributions; (2) the contributions to their account from their employer; and (3) investment earnings on these contributions. Thus, individual accounts are completely funded in advance.”
https://www.ssa.gov/oact/solvency/provisions/individualaccts.html
The SSA says that we do NOT have individual accounts which, unlike Social Security, are funded in advance.
depends how you read it.
the workers still pay for their own benefits.
the employers’ contribution is “really” the employee’s money… as your friends kept telling us when they wanted workers to think their “return on investment” was low.
the interest on investment SSA refers to is interest on the workers money. in America interest on your money counts as your money.
and part answers do not get part credit.
You go right on believing that, Coberly.