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MAYA MACGUINEAS TALKS BACKWARDS ABOUT SOCIAL SECURITY

by Dale Coberly

MAYA MACGUINEAS COMMITTEE FOR A RESPONSIBLE FEDERAL BUDGET (CRFB) TALKS BACKWARDS ABOUT SOCIAL SECURITY IN THE NEW YORK TIMES…NOBODY THE WISER

Here is what she said:

“and “protecting” Social Security and Medicare, a reassuring political promise that removes over one-third of the budget from consideration.”

“trying to square the circle of balancing the budget while taking the largest contributors to spending growth — Social Security and Medicare — off the table”

“many Republicans — including, notably, Paul Ryan, the speaker of the House — have made the case for why we have to reform our largest entitlement programs, including Social Security and Medicare”

“Democrats, many of whom too often act as demagogues on entitlement reform,…”

Read the Op-Ed on the New York Times Website.

Here is the truth
:

Social Security does not add one dime to the debt or the deficit.

It is paid for entirely by the workers who will get the benefits.

When Social Security “taxes” bring in more money than currently needed to pay benefits, that money is kept in a Trust Fund, which like other trust funds uses the money to buy interest earning government bonds. Then when Social Security taxes bring in less money than needed to pay current benefits, it cashes the bonds.

Note that Social Security is NOT borrowing money; it is LENDING money TO the government, and when SS cashes its bonds it is NOT causing the government to spend money for Social Security. The government BORROWED that money FROM Social Security and spent it on other things, including tax cuts. Paying the money BACK to Social Security does not increase the Federal Debt. It reduces it. Or it would reduce if it the government didn’t get the money to pay BACK Social Security by borrowing it from someone else.

But by talking backwards the Committee for a Responsible Federal Budget (CRFB) hopes to fool you into thinking that Social Security CAUSES the debt.

Then, when it’s time for Congress to pay back the money it borrowed FROM Social Security, this payment shows up in their budget as an “expense,” and because all the expenses add up to more than all the income, the budget is in deficit, and the payment of Congress’ debt TO Social Security, like all the other expenses, is said to “contribute to the deficit.”

But it is talking backwards to describe paying BACK the money you borrowed as contributing to your deficit.

Normal people would not think much of you if you borrowed money from Paul and then told them that Paul was responsible for your debt. And if you paid Paul back by borrowing from Peter, normal people would not think you were being honest if you said that Paul increased your deficit.

Social Security does have an “actuarial deficit.” This has nothing to do with the “budget deficit” or the Federal debt. What it means is that some time in the future if nothing is changed, Social Security will not have enough money to pay for all the “scheduled” benefits. This is a problem that can be fixed by raising the payroll “tax.”

[I put “tax” in quotes to try to remind people this is not like an ordinary tax, because you get your money back, with interest, when you will need it more than you do today.]

The amount of the raise that will be needed is not large. Ultimately about 2% of your wages from you and another 2% from your employer. It would be better to phase this in at a rate of one tenth of one percent per year… about a dollar per week in today’s money. This is at the same time your wages will be going up over ten dollars per week per year.

Or you could wait to the last minute and raise your tax by 2%. This would not be a burden, because by then your income will be at least 20% higher than it is today. But you would feel it as a burden if it hit you all at once. It’s the difference between getting a raise of 200 dollars a week and getting a raise of 180 dollars a week. If you had never expected the 200 dollars, you would be happy to get the $180. Especially if you remembered that your were not “losing” that $20 but merely setting it aside to help pay for a longer retirement than you had expected.

Or you could raise your tax about one percent today (and another one percent from your boss). This would take care of the “actuarial deficit” for the next seventy five years. But the enemies of Social Security like to scream “this won’t do: we have to solve the problem once and for all!” Actually we don’t. The people in 2090 will be in a much better position than we are to decide if they want to raise their tax another one percent or decide to do something else.

Thing is, we do have to do something now. We have to at least think about it carefully so we won’t be fooled by the people talking backwards, or stampeded by the people screaming Social Security is broke, flat bust” and “a huge burden on the young.”

Remember: a dollar a week each year if you start this year or next. Ten dollars per week for the next 75 years if you start this year and want to let the people seventy five years from now worry about another ten dollars (in today’s money) when their income will be more than twice ours. Or you can do nothing and wait a little more than ten years and then raise your tax about twenty dollars per week all at once, which will fix the problem forever (including those people living out at the infinite horizon).

Or you can listen to Maya and panic and let Congress cut your benefits, or increase the age you will be allowed to retire, or turn Social Security into welfare as we knew it (which will lead very soon to cut benefits and increases in the retirement age for the poor, and nothing for you while you still pay the taxes) with all the fun of gong to the welfare office every quarter to prove you really need it. The Left wants to help turn Social Security into welfare, because they think they can “make the rich pay for it.” I don’t think the rich are going to go along with that.

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Marginalized populations and employment during expansions

Marginalized populations and employment during expansions

Dean Baker ran a graph over the weekend showing an apparent conundrum: namely, that in the last several years there has been an increase in the percentage of those employed who only have a high school diploma vs. a slight *decrease* in employment among those with a college degree.  Here’s his graph:


This caught my attention, because I actually don’t think this is such an anomaly.  So I went back and checked.

The data posted by Prof. Baker has only been published since 1992, so we don’t have a long track record.  But it is interesting to note that a similar pattern asserted itself in the 1990s.  Take a look:

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Terrorism and Immigration Policy

From a story in The Globe and Mail

The 22-year-old Mr. Abedi was identified Tuesday by Manchester police as the suspected bomber. British media reported that he was born in Manchester to parents who fled the violent repression of Moammar Gadhafi’s Libya.

Little else is known about Mr. Abedi – British authorities have been tight-lipped about the investigation and only released Mr. Abedi’s name after it was leaked by U.S. officials – but his profile as the child of Muslim immigrants is similar to that of other recent Islamic State and al-Qaeda devotees who have brought terror to the cities of Europe.

Second-generation immigrants born in France to parents who had immigrated from Algeria carried out the Charlie Hebdo massacre in the centre of Paris in 2015. The Belgian-born children of Moroccan immigrants masterminded the shooting and bomb attacks on the Bataclan nightclub and Stade de France later the same year. All five perpetrators of last year’s bombings of the Brussels airport and subway had a similar profile.

“If the story of radicalization and Islamism in Europe is about anything, it’s about second-generation immigrants, children of immigrants who feel culturally dislocated … a sense of dislocation related to being brought up in Western culture and finding something doesn’t quite fit,” said Shashank Joshi, a senior fellow at the London-based Royal United Services Institute for Defence and Security Studies.

Of course, it isn’t just Europe. Think Omar Mateen, Syed Farook, Nidal Hasan, Nadir Soofi, and add to them any number of individuals raised in the US who made their way to fight for ISIS or Al Shabaab.

One would think that the children of immigrants would be particularly unlikely to want to cause to harm to their country. Their parents, after all, got lucky when they were able to come here. That is something they should know and a message they should pass on to their children. (Those feelings are something to which I can attest; on my father’s side, I am a second generation immigrant.)

But that decency and gratitude is clearly more than some people will show to their compatriots. And that is becoming more and more of a problem, particularly now that the terrorists have become vile enough to directly target children.

(Before you decide this is something we brought on ourselves by provoking people through our behavior abroad, bear in mind two things. The first is that pacifist countries like Sweden get the same treatment we do. The second is that Osama bin Laden told us a decade and a half ago that one of his goals was the “liberation” of al Andalus.)

Of course, none of this is to say that we don’t have atrocities committed by people who aren’t 2nd-gen-immigrants.  We do, and too many at that. No decision made at the INS in the last few decades would have saved Americans from Dylan Roof or John Allen Muhammad. On the other hand, without the signature by an immigration officer a generation ago, Omar Mateen’s 49 victims would still be alive.

Now, we have the population we have. The next Mateen is already in the US, and the next Abedi is already in Europe, and they will kill more of us, and more of our children. But there is another Mateen and another Abedi that are a little farther out. They haven’t been born yet, and their parents are currently somewhere far away. For the sake of our descendants we had better figure out how to recognize not just those evil enough to perpetrate callous acts of violence, but also those who don’t have the decency to teach their children not to be evil themselves. And we damn well better make sure we don’t let them into the country.

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Capital Flows and Domestic Responses

by Joseph Joyce

Capital Flows and Domestic Responses

The international impact of financial shocks became apparent during the global financial crisis. But how do financial flows affect economic conditions during non-crisis times? And are there ways to shelter the domestic economy from these flows? Some new evidence from the IMF seeks to answer these questions.

IMF economists Bertrand Gruss, Malhar Nabar and Marcos Poplawski-Ribeiro, in a chapter in the IMF’s latest World Economic Outlook entitled “Roads Less Traveled: Growth in Emerging Markets and Developing Economies in a Complicated External Environment,” examine the impact of external conditions on growthsince the 1970s in over 80 emerging market and developing economies. This issue is particularly important in light of the contribution to global growth—80%—by these economies since the financial crisis.

The authors construct measures for the countries in their sample to capture the following external conditions: external demand, as measured by domestic absorption in a country’s trading partners; external finance, based on capital flows to peer economies; and the terms of trade, constructed from commodity prices. The cross-correlation across these measures is low, indicating that they capture different sources of external variation. The country-specific measures often diverge from their global values, which the authors attribute to domestic factors.

The three measures are all economically and statistically significant in explaining the growth rate of GDP per capita over five-year windows in the countries under stud , contributing almost 2 percentage points to income per capita growth over the 40-year period. Their collective impact rose from about 1.7 percentage points to 2.3 percentage points over the entire period. External financial conditions in particular have become increasingly important over time. Their contribution to growth increased by about half of a percentage point between the 1995-2004 and 2004-1014 periods, and represented half of the contribution from external factors since 2005. The authors attribute the rise in part to the increased financial integration of capital markets.

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$ 2.1 trillion here $ 2.1 trillion there and soon you’re talking real money

I didn’t think they could shock me. Then I read that the Trump OMB made a $2,000,000,000,000 arithmetic mistake

Jon Chait explains “One of the ways Donald Trump’s budget claims to balance the budget over a decade, without cutting defense or retirement spending, is to assume a $2 trillion increase in revenue through economic growth. This is the magic of the still-to-be-designed Trump tax cuts. But wait — if you recall, the magic of the Trump tax cuts is also supposed to pay for the Trump tax cuts. So the $2 trillion is a double-counting error.”

Amazing, I thought. Also Chait is much better at snark even than Paul Krugman who made it sound boring “@paulkrugman
It appears that Trump budget involves two scoops of voodoo economics: faster growth *and* tax cuts without a fall in revenue as % of GDP”

But I was wrong. Chait and Krugman are discussing two different errors (3 scoops of voodoo). Mulvaney et al both counted 2.1 trillion twice *and* assumed tax cuts don’t cause any reduction in the ratio of tax revenues to GDP.

Binyamin Applebaum explains.

One example of the budget-ledger legerdemain: Mr. Trump has pledged to end estate taxation. His budget, however, projects that the government will collect more than $300 billion in estate taxes over the next decade. Indeed, the Trump administration projects higher estate tax revenue than the Obama administration did because it expects faster economic growth.

Mr. Trump, in other words, is proposing to balance the federal budget in part by simultaneously increasing estate taxation and eliminating estate taxation.

Then later and separately explains another error.

The budget’s presentation of the benefits of the administration’s economic policies also raised questions. White House officials said that tax cuts and other changes, like reductions in regulation, would push annual economic growth to 3 percent by 2020, well above the 2 percent annual average since the recession. The budget projects that the increase in economic growth will produce $2.1 trillion in additional federal revenue.

The Trump administration appears to be counting this windfall twice. It needs the money to offset the cost of the tax cuts, but in the budget, the $2.1 trillion is also recorded as a separate line item above and beyond the steady growth of tax revenues.

They are into deep Voodoo.

See also Larry Summers

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Debts, Deficits and Social Security

Dan here…I noticed several articles in the NYT (here is one forcasting Trump/Mulvaneys’ Budget Proposal 2017, contrasting safety net program cuts with the Medicare/Social Security deficit busting programs. In an aside no less. Here we go again…as if deficit spending reduction was important to Republicans, and Social Security was one of the chief problems. I am reposting Bruce’s last piece on Budget and deficit from 2014. Also see this post Social Security: Cost, Solvency, Debt and TF Ratio.

by Bruce Webb

With the release of Tim Geithner’s new autobiography the old quarrel about whether Social Security does or even can add to “the deficit” has cropped up again. So rather than weigh in let me start from a more neutral spot. CBO produces a document called the Monthly Budget Review and in Nov 2013 it carried this title: Monthly Budget Review—Summary for Fiscal Year 2013 The introductory paragraph of the Summary of this Summary reads as follows:

The federal government incurred a budget deficit of $680 billion in fiscal year 2013, which was $409 billion less than the deficit in fiscal year 2012. The fiscal year that just ended marked the first since 2008 that the deficit was under $1 trillion. As a share of the nation’s gross domestic product (GDP), the deficit declined from 6.8 percent in 2012 to 4.1 percent in 2013. (The deficit was 1.1 percent of GDP in 2007, prior to the recent recession.)

and in turn was illustrated with the following graph: Fiscal Year TotalsFiscal Year 2013 outlays and revenues
Now in the normal course of reporting CBO gives figures for any number of ‘deficits’ including ‘on-budget deficit’, ‘off-budget deficit’, and ‘primary deficit’. But here they simply reference THE ‘deficit’ without qualification. So which of the three above adjectivally modified ‘deficits’ is CBO using in this Summary of its Summary of Fiscal Year 2013? Well none of them. Instead it is using a metric which by some measures no longer exists, at least under some readings of current law. Which has led to untold confusion. Confusion which I hope to unravel a bit under the fold.

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Real aggregate wage growth finally overtakes Reagan expansion

Real aggregate wage growth finally overtakes Reagan expansion

In my opinion the best measure of how average Americans’ situations have improved during an economic expansion is real aggregate wage growth.  This is calculated as follows:

  • average wages per hour for nonsupervisory workers
  • times aggregate hours worked in the economy
  • deflated by the consumer price index

This tells us how much more money average Americans are taking home compared with the worst point in the last recession.
Let me give you a few examples why I believe that this is the best measure of labor market progress:

First, compare an economy that creates 1 million 40 hour a week jobs at $10/hour, with an economy that creates 2 million jobs at 10 hours a week at $10/hour.  If we were to count by job creation, the second economy would be better.  But that’s clearly  not the case.  The second economy is paying out only half of the cold hard cash to workers as the first.

Next, let’s compare two economies that both create 1 million 40 hour a week jobs, but one pays $10/hour and the other pays $12/hour.  Clearly the second economy is better.  It is paying workers 20% more than the first.

Finally, let’s compare two economies that create 1 million 40 hour a week jobs at $10/hour.  In the first economy, there are 3% annual raises, but inflation is rising 4%.  In the second, there are 2% annual raises, but inflation is rising 1%.  Again, even though the second economy is giving less raises, it is the better one — those workers are seeing their lot improve in real, inflation-adjusted terms, whereas the workers in the first economy are actually losing ground.

In each case, the economy creating more jobs, or more hourly employment, is inferior to the economy  that pays more in real wages to its workers,  In other words, the best measure of a labor market recovery is that economy which doles out the biggest increase in real aggregate wages.
In short, people work for the cold hard cash that is put in their pockets, and real aggregate wage growth measures how much more of that they’ve received.

With that introduction, here is an updated graph of real aggregate wages for the entire past 53 years:


So how does the current expansion compare with past ones?  Here is a chart I created several years ago showing the real aggregate wage growth in every prior economic expansion beginning with 1964:

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Republicans Can Seize a Political Opportunity by Backing Student Loan Reform

Allan Collinge is the founder of the Student Loan Justice Organization a grassroots citizen’s organization dedicated to returning standard consumer protections to student loans. The group was started in March of 2005 and has focused primarily on research, media outreach, and grassroots lobbying initiatives. located in Washington DC. From time to time Angry Bear has publicized Allan efforts to restore bankruptcy protection for student loan.

In a rare display of political courage and bipartisanship last week, Rep. John Katko (R-NY) filed the Discharge Student Loans in Bankruptcy Act with Rep. John Delaney (D-MD). This bill will return standard bankruptcy protections to all federal and private student loans. Katko is well ahead of the conservative curve on this issue and has a unique opportunity to revitalize the Republican Party in the current session by stepping up to lead the fight on this issue.

President Obama federalized the student loan system during his eight years in office and the nation’s student debt tab increased by $1 trillion. From these student loans, the federal government profits well over $50 billion annually from the student loan program, and also makes a profit on defaulted student loans. This is something no other lender of any loan in this country can claim. In fact, this is a defining hallmark of a predatory lending system. During the same time period, the price of college rose far faster than any other commodity, including healthcare, and this trend is continuing to accelerate today.

The student loan program is a structurally predatory lending system and Uncle Sam sits atop the hornet’s nest. What has caused this hyper-inflationary lending behemoth and its consequences is the fact that the Department of Education is not constrained by standard free-market protections like bankruptcy rights, statutes of limitations, and other standard protections existing for every other type of loan. Congress stripped these protections from student loans and in the end greatly destabilized the entire loan system.

Make no mistake: The Department of Education loves this freedom from free-market protections and fights tooth and nail behind the scenes to keep bankruptcy gone from its source of income. Since Trump was elected, the student loan swamp of unelected bureaucrats in and around the Department of Education have made bold moves to make this lending system harsher and more profitable.

Some true conservatives have noticed this problem and have begun to speak out. Jeb Bush, for example, put the return of bankruptcy protections to student loans as a plank in his presidential platform. Pundits and think tanks such as David Brooks and the Cato Institute have also publicly called for the return of bankruptcy protections to student loans. The issue screams out to conservatives for justice by sponsoring the Discharge Student Loans in Bankruptcy Act. By his actions, Congressman Katko is demonstrating to his colleagues that it’s fine, in fact,it is a great political benefit to stand up for the citizens, fight for free-market mechanisms, and against big government.

Sponsoring this bill will endear Katko to tens of thousands of Democratic voters who would have otherwise voted against him next year. There are roughly 100,000 people in his district with student loans, of which 63,000 are currently unable to pay down their loans.

While few of these voters would ultimately file for bankruptcy, all of them feel the predatory weight of the lending system on their backs, and all will appreciate having this constitutionally mandated power back on their side. I suspect that a large majority of these voters — regardless of party — will be strongly compelled to vote for him based upon this issue alone because it is that strongly held by these borrowers.

What is most interesting is that even if his Democratic challengers’ parrot Katko on this issue, his being a Republican makes the chances for success of the bill go up dramatically. No Democrat with the same position can claim this, and indeed we have seen similar Democrat bills flounder and fail in years past.

This is one of the hottest issues today in Congress and Congressman Katko is in the forefront of it with his bill. Other Republicans in Congress could benefit and capitalize on it to reduce the strong headwinds from Democrats in next year’s election. Republicans could do well in supporting this bill and avoid a crushing defeat.

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