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

A Key Reason America is No Longer Great: The privatization of state and (especially) local governments, in both the services they provide and in the way these governments (especially the local ones) are funded. [UPDATED.]

Coberly/ July 21, 2016 10:26 am

mike

instead of begging to differ, why don’t you try to explain your case better?

it sounds to me like you are arguing that ignoring traffic violations in black neighborhoods will result in more black on black crime including homicide.

that could well be the case, but i don’t think anyone is suggesting that a lack of normal policing is the answer to police killing black (or white) people who are not posing a threat.

so whatever you are proposing has failed to make itself clear to me.

____

Me/ July 21, 2016 11:15 am

Yup. Just think of all the homicides that have been prevented by the incessant traffic stops of black motorists for a burned-out taillight.

In Michigan, btw, by law you get just a warning for a burned-out taillight or turn signal, since people don’t necessarily even know that the light has burned out. You get the light replaced and mail in or drop off at the courthouse a receipt for the repair within 10 days, and there is no fine.

Which makes a big difference. A huge amount of excessive policing of minor traffic violations, real or fabricated, is the result of conflict-of-interest funding of local government, including and probably principally law enforcement–the police, the courts, the local jails. And the less wealthy you are, the likelier you are to have a burned out taillight or turn signal, because you are likelier to have an older car. Michigan’s law removes this issue.

And the federal government should enact it nationwide–which, in anticipation of a states’-rights/freedom/it’s-unconstitutional push-back, I’ll just say at the outset that it would be clearly constitutional under the Commerce Clause and the Fourteenth Amendment’s equal protection clause and specific authorization in the Fourteenth Amendment’s Section 5.

— An exchange between reader and occasional AB poster (on Social Security) Dale Coberly and me this morning in the Comments thread to Mike Kimel’s controversial July 19 post titled “Interactions Between Black People and the Police

If the public really wants meaningful change and wants to make America great again, one critical component would be to reverse the privatization of what should be, were for most of this country’s history until the Reagan Revolution, and are in virtually every other advanced country, government functions.  And to drastically limit the percentage of government spending that can be paid for by fines for traffic violations and ordinance violations.

And, yes, federal statutes can, within the parameters of the Constitution, be enacted to accomplish these things.

Notwithstanding Freedom and Liberty and states’ and municipalities God-given right to violate individuals’ constitutional rights that have nothing to do with gun ownership, religion, or the purchasing of officeholders via campaign donations or personal-finance donations.*

Really.

*Sentence rewritten for clarity after posting. 7/21 at 5:16 p.m.

____

UPDATE: Comments thread exchanges:

Warren/ July 21, 2016 2:15 pm

“[One] critical component [is] to reverse the privatization of what should be… government functions.”

Such as?

 

J.Goodwin/ July 21, 2016 3:08 pm

Prison management?

 

Me/ July 21, 2016 5:25 pm

Ambulance and firefighter services, for another. Which bill people several thousand dollars a shot.

And entire police departments and court systems and local jails are supported by exorbitant fines and court fees and late fees and this fee and that fee for having gotten a traffic ticket or some such.

Didn’t used to be that way. Used to be that normal taxes paid for these things. Y’know; back when America was great.

 

Lyle/ July 21, 2016 4:26 pm

Note that Ca has a similar thing called a fix-it ticket, that once you get it fixed you drive to a police station have a cop sign that it is fixed and you get the ticket dismissed

The New York Times has been writing a lot on various aspects of this issue, but it’s completely ignored by most candidates for, well, any government office.  Bernie Sanders was the exception, and I think (but I’m not sure) that Elizabeth Warren has discussed some aspects of it, as well.

But Hillary Clinton should discuss it.  It’s tremendously important to many, many people’s lives, and lies at the very heart of much of the blacks-versus-police-and-the-courts issue.  Clinton shouldn’t dodge this.

Added 7/21 at 5:41 p.m.

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SOCIAL SECURITY, OBAMA, and the CRFB

by Dale Coberly

SOCIAL SECURITY, OBAMA, and the CRFB

Obama once offered to cut Social Security as part of a Grand Bargain with the Republicans.  Now he says he thinks Social Security ought to be expanded.

The Committee for a Responsible Federal Budget (CRFB) answers him with their usual list of reasons why Social Security is going to ruin the country. [  here   ]

I am going to try to explain to you what’s wrong with this picture.

The most important thing to understand is that Social Security is not welfare.

The government does not pay for it.  The rich do not pay for it.  The workers who will get the benefits pay for it. It is a mandatory savings and insurance program.  Workers are required to save about 6% of their wages by means of the FICA deduction from their paycheck  In return, these savings are protected from inflation and market losses. And they are insured against personal bad luck including a lifetime of low wages (being unable to save enough),   Their savings earn an effective interest directly from the growth in the economy through “pay as you go” financing, so that in retirement workers will get back about three times as much as they put in.

Roosevelt thought it was critical that Social Security be paid for by the workers themselves and not be welfare, “so no damn politician can take it away from them.”

But the “damn politicians”  have been telling the Big LIe for eighty years, and now everyone talks about Social Security as if it IS welfare.  The enemies of Social Security have always understood that calling SS welfare, or even turning it into welfare, is the first step to taking it away from the workers.  But it is only recently that the Left has decided to “save Social Security” by turning it into welfare.

I think this has happened because the Left has bought the Big Lie.  After hearing so much about the “looming XX Trillion Dollar Unfunded Deficit!” they have decided that the only way to save Social Security is to find the money to close the deficit,  and since the only people in America who have money are the rich, it’s “obvious” that the way to save Social Security is to tax the rich.  [This is not to be confused with Bill Clinton and Newt Gingrich’s grand bargain that the “obvious” way to save Social Security was to raise the retirement age… so the poor would not be able to retire when they get too old to work.]

Just the other day  Michael Hiltzik  (LA Times) , a friend of Social Security, discovered that Social Security can be “saved” by any or all of a large number of new taxes on the rich.

I can see why CRFB thinks Social Security is going to ruin the country.

But here is what they all forget:

The “looming XX Trillion Dollar Defict” can be closed entirely, simply by letting the workers save an extra one tenth of one percent of their pay each year in Social Security.  This would amount to an increase in the SS “tax” of about one dollar per week (in today’s terms) each year while wages are going up over ten dollars per week each year. Because wages are going up ten times as fast as the tax, the increase in the tax each year would never be felt as more of a burden than one dollar per week would be felt today.  And the tax increase would not go on forever.  About twenty years should see us through the demographic changes (increasing life expectancy, lower birth rates, and slower growth in wages) responsible for the actuarial deficit.  At that time workers would be earning about two hundred more dollars per week in real dollars, while putting away twenty dollars of that toward a longer, richer retirement.

I am not sure I understand the people who think an extra dollar per week each year is more than workers can afford to save for the food and shelter they will need when they are too old to work.  Or why they think “the rich” will be willing to pay ten times that much for someone else’s retirement (there are more workers than there are rich people).   Possibly they are just fixated on the Justice of making the rich pay for the poor.

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DEAR PAUL KRUGMAN Please Read This about Social Security

by Dale Coberly

DEAR PAUL KRUGMAN
Please Read This
about Social Security

Dear Paul Krugman,

There was an indication the other day that you read Angry Bear, at least sometimes. I hope you read this, because it is important, and you have a better forum than I have.

I think the following facts would be game changers in the so-called “debate” about Social Security, if they become widely known and understood.

Social Security has nothing to do with the deficit…
In spite of tortured logic like that of Chuck Blahous who admitted grudgingly that “technically” Social Security does not affect the budget, but “in reality” if Congress has to pay back the money it has borrowed from Social Security, that will have an effect on the budget. This amounts to blaming granny for lending me her life savings. After all, if she hadn’t lent it to me I wouldn’t have spent it. Therefore it’s her fault that I have to get a job or borrow money from someone else to pay her back.

… and therefore should not be part of the “deficit reduction” hysteria.
Again, in spite of logic so tortured it gives lies a bad name: The serious folks who are so very worried about the deficit sometimes admit that Social Security has nothing to do with the deficit, “but we need to cut Social Security to give confidence to the markets.” Because even though Social Security has nothing to do with the deficit, cutting it will show “the market” that we are serious about controlling our deficit.

Social Security is not going broke.
It can’t go broke. It is paid for by the workers who will get the benefits. As long as they understand the value of protecting part of their savings from inflation and market losses… insuring at least a minimally decent retirement… they will want to be allowed to continue to pay for their Social Security.

The Trust Fund is NOT Social Security. It does not matter at all when it “runs out.”
The Trust Fund is normally a reserve of one year’s benefits designed to smooth the ebbs and flows of taxes versus benefits. It was allowed to grow following the 1983 increase in the payroll tax to about three times the normal size in order to allow the Boomers to help pay in advance for their own Social Security benefits beyond what would normally be paid by “pay as you go” financing. This corrected a potential “generational inequity.” This enlarged Trust Fund was always supposed to run out of money about the time the Boomer cohort no longer put unusual stress on the pay as you go system. So far it is on schedule to do exactly that. The precise date that the Trust Fund returns to the normal level is completely unimportant to Social Security.

The “Eight Trillion Dollar Actuarial Deficit” can be paid for by raising the payroll tax eighty cents per week each year.
This is a fact that can be established with certainty with real arithmetic (real arithmetic is not the “it’s just arithmetic” you hear about from journalists and congressmen who have no idea what they are talking about). Raising the payroll tax one half of one tenth of one percent per year… about forty cents per week in today’s terms … would entirely close the projected actuarial deficit over the 75 year actuarial window. Wages are projected by the same Trustees Report to rise about eight dollars per week each year over the same time period. So at the end of the day the workers will have twice as much money in their pockets AFTER paying for their Social Security, plus they will have guaranteed their own retirement at the normal retirement age with the present replacement rate… an amount that will also be twice in real value what today’s retirees get. Because of the recent recession, it would be better to raise the tax eighty cents per week each year over the next twenty years instead of at the slower rate. Eighty cents per week would still not be felt by the workers.
Social Security was designed…insisted upon by Roosevelt…to be worker paid: “So that no damn politician can take it away from them.”

Roosevelt did not count on the persistence of damn politicians, or the bad memories of workers, or the failure of the “defenders of Social Security” to honestly inform the workers. The workers will be glad to pay that eighty cents once they know about it, and understand it. The “defenders” of Social Security play into the hands of its enemies by calling for schemes to “make the rich pay for it.” Roosevelt knew that would be the death of Social Security. The rich will not pay for it. Or if they did, they would own it, and it would not be long before they would insist upon cutting it, turning it into welfare, and means testing it. And the workers would no longer be able to say… as they do now… “we paid for it ourselves.”

The “bi-partisan groups worried about the deficit”… which means folks paid by Peter Peterson to destroy Social Security by pretending Social Security is causing the deficit… tell very carefully crafted lies about Social Security. The people who style themselves defenders of Social Security waste their time deconstructing the little lies, while the Big Lie goes unanswered. One of those people apparently believes that “doing nothing” is the answer. He seems to believe that something will turn up that will extend the life of the Trust Fund and silence the calls for “fixing” Social Security. He could be right… the best “fix” for Social Security would be to raise the wages of workers. But this is not something we can realistically expect to accomplish in any reasonable time. And the Big Liars are not going to wait. Unless we can offer a realistic plan, that people can understand, to pay for the projected Social Security actuarial deficit, the Big Liars will push forward their “fixes” that are designed to destroy Social Security.

The Big Lie is that “Social Security is going broke, causing huge deficits that will burden our children.”

Social Security is not going broke. It has nothing to do with the deficit. The workers pay for it themselves. They can always pay for it themselves. If the costs of retirement rise as they are expected to, the cost of Social Security will rise…. about eighty cents per week per year. This is not a burden on the young. It is money they will get back with interest when they need it most. It is in fact the best deal that workers have ever had.

Tell the people.

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Fareed Zakaria on Social Security, Fareed Hearts Pete Peterson, Disses your mom

by Dale Coberly

Fareed Zakaria on Social Security

Fareed Hearts Pete Peterson

Disses your mom

Fareed Zakaria wrote an essay for Time, The Baby Boom and Financial Doom. Dean Baker responded to Zakaria with Fareed Zakaria is unhappy that the American left chooses arithmetic over Peter Peterson. Baker makes the point that the increase in the number of people over age sixty five has always been accompanied by an increase in productivity that makes everyone richer despite the costs of feeding the old.

Baker is far too kind to Zakaria. Zakaria’s article is a compendium of lies designed to fool people in order to lead them to their harm. The lies are not original with Zakaria but are the same lies we have been hearing from Peter Peterson sponsored think tank “non partisan expert” liars for years.

I hope that by taking a little harder look at those lies people will learn how not to be fooled by them and others like them. [Note: I have been told that I need to find another word for “liars.” I understand that people are put off by it, but they need to understand that is exactly what we are dealing with here: lies and liars: words designed to deceive you by people who mean you harm. It is almost possible to believe that Zakaria doesn’t know he is lying, but has merely been fooled by Peterson. But the selection of “facts” presented by Zakaria suggests he knows exactly what he is doing.]

Here is what Zakaria says:   (under the fold)

The facts are hard to dispute. In 1900, 1 in 25 Americans was over the age of 65. In 2030, just 18 years from now, 1 in 5 Americans will be over 65. We will be a nation that looks like Florida. Because we have a large array of programs that provide guaranteed benefits to the elderly, this has huge budgetary implications. In 1960 there were about five working Americans for every retiree. By 2025, there will be just over two workers per retiree. In 1975 Social Security, Medicare and Medicaid made up 25% of federal spending. Today they add up to a whopping 40%. And within a decade, these programs will take up over half of all federal outlays.

Well, the facts may be hard to dispute, but they don’t have anything to do with Social Security, and Social Security doesn’t have anything to do with the deficit.

The short answer to Zakaria’s Baby Boom and Financial doom scenario could be put something like this:
Social Security is paid for by the people who will get the benefits. It is their own money. It has nothing to do with the federal budget. The population numbers that Zakaria offers sound scary because they are meant to sound scary, but the fact remains that the workers can continue to pay for their own Social Security by simply raising their own payroll tax by what amounts to forty cents per week each year. This is an “undisputable fact” that can be clearly demonstrated. And it takes into account all the baby boomers, and the increasing life expectancy, and the poor growth in wages the Trustees project over the next 75 years. It also takes care of the “infinite horizon” which the Big Liars like to trot out when the numbers for the next seventy five years don’t sound scary enough.

In particular, the Baby Boomers have already paid for their retirement. That is the Trust Fund you hear about. It’s real money, paid by the Boomers. It needs to be paid back to them for their retirement. Paying back money that you owe does not increase your debt; it decreases it. The Trust Fund is not “going broke.” It is paying for the Boomer retirement, as it was created to do. After the Boomers have been paid, the Trust Fund will return to a normal reserve fund and Social Security will go back to “pay as you go” as it was designed.

An average worker today might be making, say 50,000 a year, and paying about 3,000 a year for his Social Security, leaving him 47,000 for other uses, including other taxes. His boss contributes another 3,000. And because there are today about three workers for each retiree, those three workers contribute a total of about 18,000 dollars per year, which is about what the average Social Security benefit is.

In another forty years or so, the average worker will be making twice what the average worker today is making… so, say 100,000 dollars (inflation adjusted). If nothing else changed, he would pay about 6000 a year in payroll tax, leaving him 94 thousand dollars for other uses, and his boss would contribute another six thousand, making 12000. By then there might be only two workers per retiree, so there would be 24000 available for that retiree’s Social Security benefit. But 24 thousand a year might feel like poverty in a world where the average wage is 100k. So those workers… who know they will soon become retirees themselves … might agree to pay 8000 each per year, leaving them 92,000 per year for other uses. Their bosses would contribute another 8000 (don’t worry about the poor boss: “most economists agree” that this is “really” the workers money). So 16 thousand, times the two workers per retiree, results in a SS benefit of 32000 per year. Enough to live on in reasonable comfort. (Please note that with a real income of 92 thousand a year, those workers would have plenty of money to “invest in the market” to try to raise their standard of living in retirement. But the SS would be there “in case all else fails.”)

And that’s it. Please note that the poor worker staggering under his load of one retiree for every two workers has 45000 dollars more in his pocket after paying his payroll tax than he has today, and he can look forward to a retirement with 14,000 more dollars per year than today’s retiree. That is, in spite of the staggering load of only two workers per retiree, the future worker will be about twice as rich after paying his payroll tax, and will be able to look forward to being twice as rich in retirement.

It is hard for me to see the gloom in this picture, much less the doom. You may note that the workers could have decided to not raise their payroll tax, keeping the extra two thousand a year for “now,” at the cost of 8000 a year when they are retired. I think this would be a foolish choice, but if it were made honestly, with everyone knowing what they were doing, I would not have an objection.

But Zakaria and Peterson try to keep the people from knowing what their honest choices are.
“The facts are hard hard to dispute…”

but the facts Zakaria chooses are meant to deceive. Please note “the facts are hard to dispute” adds nothing to the argument but does tend to set up in the unwary reader’s mind… “no point arguing with this… these are the facts.” And it is pretty much the standard of excellence among “non partisan expert” liars to use “facts” which are “strictly true” but nevertheless designed to mislead.

“ In 1900, 1 in 25 Americans was over the age of 65. In 2030, just 18 years from now, 1 in 5 Americans will be over 65.”

Does this sound like it means something? It’s meant to. Something like, “Gosh, the population of old people is soaring. It’s going to cost me five times as much to pay for “the old” if we don’t do something.”
Well, maybe not. In 1900 people had large families because a lot of their kids died. This by itself would tend to make the ratio of under sixty five to over sixty five larger than it is today. Add to that the fact that people over 65 also tended to die “young” because they couldn’t work and ran out of money for food and shelter. But perhaps Zakaria doesn’t really want to return us to the dear old days of high infant mortality and a short but miserable old age. Maybe he’s only pointing at the problem… “how are we going to support all these old people.” But in fact he is not. He is pointing away from how we are going to support these old people: We could continue to support them the way we have since 1936 when Social Security was invented: Allow them to save enough of their own money in a way that is safe from inflation and bad days on the market.
And the fact is that unless we decide to kill off the old, we are STILL going to have to “support” them, even if there is no Social Security at all. When they cash in their stocks and bonds, it will be “the young” who are providing the cash.

“Because we have a large array of programs that provide guaranteed benefits to the elderly, this has huge budgetary implications.”

Well, maybe not. Workers pay for their own Social Security “off budget.” So Social Security has no budgetary implications whatsoever. Medicare has some “budgetary implications” because it was made partially “on budget” in what I think was a misguided attempt to make the rich pay for more of it. Ordinary workers could pay for all of their own expected medical care in retirement through Medicare, but eventually a serious effort would need to be made to bring down the cost of medical care or no one but the very rich will be able to afford it. This is a problem Zakaria… and Peterson… carefully do not address. Because Peterson’s agenda is ENTIRELY the destruction of Social Security, despite what he says.
Medicaid is entirely on budget; it is welfare. But again, unless you want to go back to high infant mortality and people dying in the streets, this is a problem we are going to have to address. And the way to address it is not to begin by cutting the programs and throwing sick people into the streets. It would help if you knew that the budget deficit has not been caused by medicare and medicaid, but by unreasonably high defense spending, wars of dubious value to America, and the massive fraud of “bankers and private equity billionaires” that brought down the economy in 2008. America can still afford to take care of “the least of these.” And for those who think money is the measure of all things, a case can be made that taking care of the sick now ultimately makes the country richer.

“ In 1960 there were about five working Americans for every retiree. By 2025, there will be just over two workers per retiree. “

This does not mean what it seems to mean. You might ask, if you knew to ask, why Zakaria leaves out “the fact” that today the ratio is three working Americans for every retiree. Perhaps that makes the jump to “two working Americans” seem less scary. Perhaps that might make you ask “how can only three of us support each retiree? The answer turn out to be that “we” are not supporting those retirees. They paid for their Social Security themselves. But this ratio of retirees to workers scare “fact” is a perennial, and I want to take some time with it. It will be a little bit (not much) mathematical, made harder by the fact that I don’t know how to draw pictures on line: you will have to use your imagination and draw them for yourself.

First there is the original version: “there were 40 workers per retiree in 1940” or “16 workers per retiree in 1950”… or some such.

This is a meaningless artifact of how the Social Security system was phased in. Imagine if you will a country which has recently experience hard times which have wiped out the life savings of everyone.

The people get together and decide to create an insurance pool to keep this from happening again. Imagine there are forty million people in the pool, one million aged 25, one million aged 26, one million aged 27, and so forth to one million aged 63 and one million aged 64. So far no one has retired so the ratio of workers to retirees is 40 million to zero. The next year the one million aged 64 turn 65 and retire. The one million aged 25 turn 26 and “move up a year” as does everyone else, with one million new workers who turn 25 and enter the insurance pool. So the number of workers remains the same while the number of retired people increases by one million. Now the ratio of workers to retirees is 40 million to one million… or 40 to 1.
Next year another million people retire and another million young workers enter the pool, and the ratio becomes 40 to 2, or 20 to 1. And the next year another million… etc, and the ratio becomes 40 to 3 or about 13 to 1. And so on.

First note in passing that those first cohorts who retire “only” paid their insurance premium for a year or two… far less than they will collect in benefits. But the people knew this when they designed the insurance pool. They reasoned that the first retirees were people who had lost the most savings in the depression; the first retirees had worked their whole lives paying taxes, supporting their own elders, and supporting the children who would be directly paying their benefits, as well as building the infrastructure that made it easier for those children to make money than it had been for their elders. They also noted that none of the later retirees.. people who paid the premium “tax” for a full forty years … would lose anything by the deal. They would collect the benefits they paid for in their turn… benefits that would equal what they paid in, plus an interest that takes care of inflation and about two percent real interest on top of that. Plus any “insurance” benefit they would collect if they died with dependents, got disabled, or just never made enough money to have saved enough for retirement.

But note that people don’t live forever, so by, say, year ten, the number of retired people increases by another million but decreases by say half a million who die that year. This means that the ratio of workers to retirees will not continue to decline forever. It will stabilize at some level that reflects the death rate of retirees, or what is the same thing, the average life expectancy of retirees.

If, say, the average death rate was 10% of each cohort of retirees each year, then after 10 years (in our model… real life is a little more complicated) the number of people who die each year is the same as the number of new retirees. This would also mean that the life expectancy… you have a 50-50 chance of living to this age… of new retirees would be five years.

Draw a picture. Make a bar graph: write ages on the bottom axis, and population on the vertical axis. For every age from 25 to 64 the bar is “one million” high. For every age after 65 the bar is shorter by 10% or 100 thousand. So you have 40 million workers, and 900 thousand plus 800 thousand plus 700 thousand… and so on … retirees. The sum of those retirees is four and a half million (9 plus one, 8 plus 2, 7 plus 3, 6 plus 4, and 5). So the ratio of workers to retirees is about 40 to 4 1/2) or about 9 to one. And this is a ratio that will not change over time unless there are changes in death rates, or birth rates, or immigration. Note that the life expectancy is about four and a half years. This means that each worker works for forty years and can expect to collect 4 and a half years of benefits. So, oddly, the ratio of workers to retirees is the same as the ratio of working years to retirement years for EACH retiree.

If the death rate was 5% per year for each cohort of retirees, the bar graphs would decline at a slower rate.. taking 20 years to reach zero at age 85, with the life expectancy now ten years. One million retirees still die each year, but now there are ten million of them alive at any one time . This makes the ratio of workers to retirees 40 to ten or 4 to one. It also makes the ratio of working years to retirement years 4 to one.
Now, finally, let us give those retirees a life expectancy of twenty years… half of them will die by age 85, and (most of) the rest of them by age 105. This would result in a population of retirees of twenty million… or a ratio of workers to retirees of 2 to 1. It also means that workers will work two years for every year they expect to be retired.

But wait, if they are going to be retired, they are going to have to buy groceries for those twenty years. Where are they going to get the money?

Well, they could save it from their earnings if we could solve the inflation problem for them in a way that didn’t expose them to the risk of ending up with nothing at all from investing in stocks that fail. And this is what Social Security does.

Note that they don’t need to save enough in protected savings to have the same income in retirement as they have while working. They could decide, say, that since the kids are grown and the mortgage paid, if they had to they could get by on, say, one third of their working wage. Since they will be working 40 years and expect to live 20 years, they would need to set aside about 16% of their wages to have enough. (16% times 40 equals 32% times 20.)

And if they put that money into an insurance pool, they can expect to keep collecting that 32% even if they live longer than 20 years. This is made possible by the money paid in by the people who don’t live as long as the twenty years.

But Zakaria doesn’t know that and Peterson doesn’t want you to know that.
You are making well over twice as much money as your grandparents made… and they struggled to save 10% of what they made to eke out a retirement that would only last about ten years. But you, twice as rich as they were, are being told you can’t be expected to save 16% of your wages to pay for a retirement that will last twice as long or maybe a lot longer?

Or maybe you can. But the only way to do this is through Social Security, and Peterson doesn’t want you to, because even though its YOUR money, its a “government” program. And that drives Peterson crazy. Literally insane.

But wait, it’s better than that. While you are paying your 16% every year, wages will be going up so that by the time you retire real wages will have about doubled. That means that the 16% workers are paying in each year will be worth twice as much as the 16% you paid in (this is a simplification). That means that instead of living on about 33% of what you were making while working, you will have about 50% or more. Because Social Security is insurance, the effective interest on your premium (payroll tax) is a lot higher if you were a low wage earner than if you were a high wage earner. The high wage earner is not hurt by this. He still gets a reasonable “return on investment” plus the insurance value of Social Security “in case” things had not turned out so well for him. The interest on your Social Security “investment” is not high. It depends on the growth in the economy, but it is always higher than inflation. And whatever happens, you will get “enough.” And that’s priceless.

The “facts are not in dispute.” And the facts are that all the scary language about the looming booming number of old folks “we” have to support… turns out to mean that we can easily afford to support OURSELVES out of our own savings, protected by Social Security, but not “paid for” by the government.”
And if you are going to live longer.. become one of those looming booming old people… you are going to have to find a way to pay for those extra years. Social Security provides a very secure way to pay for at least “enough.”

That is if you don’t let the Big Liars scare you into letting them “save” it.

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Workers will have MORE money in their pockets AND will have paid for a longer retirement at a higher standard of living

There are a number of well thought out plans to handle the problems proposed by opponents of Social Security and also those concerned about its sustainability. To have our political and media debate confined to one item like chained-cpi should make any reasonable voter pause and wonder “Is that all? How dumb can we be?” Take a breath and a half hour to review trhe fact that there a a lot of alternatives…don’t let your politician quote you a bumper sticker slogan. There are plenty of alternatives that won’t cut benefits for a well functioning program that could deliver a decent result.

“Workers will have MORE money in their pockets AND will have paid for a longer retirement at a higher standard of living.”   Social Security cuts offered…why?

According to the 2010 CBO report Options for Social Security the chained CPI will “solve” about one third of the projected shortfall.
Since a tax raise of forty cents per week per year over the same time would solve the entire projected shortfall, it looks as though the chained CPI is going to save workers about 13 cents per week per year while their wages are going up eight dollars per week per year.
Of course the chained CPI is going to cost them a thousand dollars a year when they are too old to do anything about it.
Makes you wonder who the President’s financial advisor is.

The CBO report was from 2010. raising the cap to cover 90% of earnings would put the cap at about 150k, and their benefits would be increased.
This might be salable to them… if they figured the extra tax was a reasonable price to pay for the extra insurance… I am guessing their SS benefit would go from about 26k to about 35k. I don’t think they would be happy with that ratio.
In any case I would prefer to pay the extra 13 cents per week and keep Social Security “worker paid.”
You don’t want welfare. it’s ugly.

Dale Coberly

Everyone interested in actual SS numbers should read that CBO 2010 report ‘Social Security Policy Options’ or just refer to special figure 1. CBO scored 30 different policy options taken in isolation and although some would interact if enacted together for the most part you can treat the fixes as a cafeteria plan and mix and match to reach your 0.6 target. For example there is one fix that closes 0.9 of that 0.6 which makes room for proposals that shift benefits to the bottom in a way that still mets out at 0.6. Now in the event I agree with Dale that this particular combination adds up to ‘welfare’ and moreover that that would be a bad thing. But your views may vary.
The point being that most obvious changes to SS have already been scored, all you need to do is Google the cited document.

Bruce Webb

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SOCIAL SECURITY and Uncle Sam

by Dale Coberly
SOCIAL SECURITY

and Uncle Sam

moving parts edition

Most of us have heard the “phony iou” claim about the Social Security Trust Fund, with its accompanying cartoon of a hapless Uncle Sam furiously borrowing from his left pocket to fill up his right pocket, and stuffing “worthless iou’s” into the left pocket to pay for what he borrowed.
And most of us know there is something wrong with this picture, but find it hard to say just what it is. And of course some of us know exactly what is wrong and say it clearly, only to be met by unbelieving looks from the folks who had nodded their heads wisely when the folly of Uncle Sam borrowing from himself was first “explained” to them.

I have tended to “explain” the fallacy of the Uncle Sam cartoon by reminding people that there is more than one person in the United States and that we borrow from each other all the time. The people who pay the income tax tend to be “the rich.” And the people who pay the payroll tax tend to be “the poor.” Moreover, the people who paid the “excess” payroll tax, the boomers, are NOT the people who will pay back the money. The money will be paid back by the boomers’ “children,” who will generally have more money than the boomers did, and who presumably get the advantage of living in a richer, stronger country paid for by the money that was borrowed. This explanation has met with no notable success.

I thought I’d take the “only one man in America and his name is Sam” hypothesis seriously for a moment and see if i could use it to explain what is wrong with some other aspects of the phony iou claim… including the one that “we pay for our Social Security twice… once when we paid the payroll tax and once again when we pay the income tax to repay the money the government borrowed from Social Security (or “from itself,” in some versions).”

Goes like this:

Forget the government, forget Social Security, forget the income tax. Just imagine that YOU have been saving… putting your money in a box… for something, call it A, that you will need in three months. You have a hundred dollars in the box… just what you will need for A when the time comes.

Suppose then that something comes along that you need to buy right now, like a nuclear submarine to save you from the Russians or something. Call that B. It will cost 100 dollars.

Suppose also that you have a steady job.

Now, you can’t afford to pay for B out of this week’s earnings. But you do have enough money in your box of savings for A. And you won’t be needing to pay for A right away.

So you take the money for A out of the box, leaving behind a note that reminds you that you have to pay it back.

You use the money to buy B “in cash.” Then you start replacing the money you borrowed from the box, at ten dollars per week out of your income. In ten weeks, just in time, you will have enough money in the box to pay for A.

So, have you paid for A twice?

I hope you didn’t answer yes. Because then who paid for B? You paid a hundred dollars for B, and you paid a hundred dollars for A. You did NOT pay two hundred dollars for A. The point here is that you CAN borrow from yourself, and when you pay back the money to yourself, you have not “paid twice” for what you were originally saving for. You paid once for that, and once for whatever you borrowed the money for.
[Truth in advertising: i tried this explanation on a kind friend of mine. He didn’t buy it.]

Be glad to hear your reasons why.

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SOCIAL SECURITY…Sweet Reasonableness and Fact Checkers

by Dale Coberly


SOCIAL SECURITY
Sweet Reasonableness
and Fact Checkers

Apparently the Big Liars are getting worried about the fact that “Social Security has nothing to do with the deficit.” There have been a flurry of little Big Liars “proving” that in fact SS is a contributor to the Deficit. I am going to try to point out the hidden lie in a couple of these articles, beginning with the most dangerous.
Glenn Kessler ( Washington Post ) sets himself up to be The Fact Checker for the Washington Post. The trouble is, of course, that in this world every liar begins by claiming himself to be the Fountain of Truth and offers to explain things to the little people who wouldn’t be expected to know without his kind guidance and protection. The Devil, they say, can appear in the guise of a Franciscan monk when it suits his purposes.
And Kessler adopts Sweet Reasonableness for his schtick today. Why not? It works for Lyndsay Graham.
“Senator Durbin,” he tells us, says “Social Security has added not one penny to the deficit.”

Kessler explains how he previously “evaluated” similar statements and “rated” them, “true but false.” Can’t get any more fair and balanced than that. But Kessler is worried that this “true but false” statement will lead readers to forget that “Social Security’s a long term issue that can’t be deferred.” I hope you notice how we are gently being led into the swamp. Most Washington Post readers will not notice. These are, after all, the people who took on mortgages they couldn’t afford because “house prices can only go up.” And of course were blamed for their foolishness later by the very people who sold them the mortgages.

Update: Also see Jamie Galbraith
explains why the WaPo’s so called fact checkers is wrong as well, in addition criticizing “sensible liberal” takes on middle class and what works.

But Kessler doesn’t “mean to pick on Durbin since plenty of Democrats in recent days have made similar comments.”

Ah, see how fair we are being. Can’t blame Durbin, because all the Democrats are doing it.

But Kessler “remains troubled.. given the further decline in Social Security’s finances in the past year.” Note we get this “further decline” as an established fact that we don’t have to question. We will not even be given time to ask whether this “fact” bears on the question of SS contribution to the deficit. Remember, that’s where we started.

And of course, more sweet reasonableness: “we do not think this is a slamdunk falsehood as some people believe, but it is certainly worth revisiting”… in order to convince you dear reader that while it is not false, this “talking point” is not true. See, we are just saving you from being misled by that fast talker over there.
Then Kessler gives us a list of “facts,” which are true enough to establish his credibility as a fair truth checker. While he leads us ever so gently by the hand to his disturbing conclusion: You see, all that money coming into Social Security from interest on the Trust Funds “is simply paid with new Treasury Bonds.”
Leading to the inevitable conclusion that SS does indeed increase the deficit. You see, if you borrow money and you have to pay it back, that “increases your deficit.”

I hope… without hope… that what is wrong with this is obvious to the (my) reader. But just in case: paying back money you owe does not increase your debt. It decreases it. Even if you borrow money to pay back the money you owe someone else, you do NOT increase your deficit… you just exchange one debt for another. And in any case… the person you borrowed from did NOT increase your deficit. YOU did. And if you try telling him you are not going to pay him back because that would increase your debt… he may send the boys around to break your knees. And you would deserve it.

But Kessler regards this as “a matter of Theology.” I guess it is, some people regard paying their debts as something like Thou Shalt Not Steal. Others, like Kessler, regard not paying your debts… especially if they are owed to old ladies who can’t break your knees… as simply “good business practice.”
And of course, my debt is her fault because she lent me the money.

But, he says, some say “this is just paper shuffling among different parts of the U.S. government.” Those people who paid into the Trust Fund to pay in advance for their own retirement “benefits” don’t exist. The government is some kind of Monolithic “person” that only owes money to itself. The “government” has no relationship of trust whatsoever to the people it calls “citizens” or “taxpayers.” It’s theology: “the government giveth and the government taketh away.” or in this case, the “government borrows and the government stiffs the people it borrowed from.” We are not expected to notice that the government borrowed from workers to give tax breaks to the rich, and that not paying back the workers will save the poor hard working job creators from the indignity of paying back what they borrowed (through the government they paid for). Or, heaven forbid, that the money the United States of America borrowed had nothing to do with creating, or protecting, “our” ability to make more money in the (now present) future so we could afford to pay back what “we” borrowed. Nah, that would sound too much like the “government behaving like a business.”
Kessler says, oh so reasonably, “What matters is whether Social Security is generating enough money to pay for its bills on its own. The plain fact [we are, after all, fact checkers] is that it is not.”

This is a lie. It is in fact a damned lie. Social Security “generated” the money to pay for its bills on its own. It lent a temporary excess of that money, those taxes, to The United States of America. Kessler says that Social Security cannot cash its bonds to pay for its bills… because that would, you see, force the United States of America to find some money to pay its full faith and credit obligations with. And we all know the United States of America is broke, flat busted. Where would The United States of America find that kind of money?

See, “White House budget documents… show that … Social Security outlays exceed Social Security payroll taxes, thus boosting the bottom line federal deficit.” Well I would not want to accuse the White House of keeping two sets of books, but if you refuse to count the money Social Security already collected in payroll taxes and saved for just such a recession as we have today… and can say with a straight face that “outlays exceed taxes” while pretending the interest on previous taxes does not exist… you are a goddamn liar.
You want to watch out for damned liars who call themselves Fact Checkers and lead you with sweet reasonableness to your own destruction.

[Kessler hints at, but sweetly does not go into, the “fact” that the payroll tax holiday causes Social Security to contribute to the deficit. This is also a lie, but more subtle. It is not Social Security contributing to the deficit. It is the tax “holiday.” The tax holiday is NOT Social Security. It is the opposite of Social Security. In fact it might best be understood as what would happen if the Liars succeed in cutting Social Security. At some point people will not have enough SS benefits to live. At that point the Congress may have to pay “welfare” to those people out of the general fund (the deficit). Will they then blame Social Security for causing the deficit? Of course they will. Because the “fact checkers” will have taught them they can say any damn thing they please, and the people won’t be able to do anything about it.]

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Reply to Charles Balhous on Social Security finances

by Dale Coberly

(Dan here…Dale Coberly replies to this article (Is it Becoming Too Late to Fix Social Security’s Finances?) by Charles Blahous).

Blahous,

You do not seem to grasp how small “4% of the tax base” is,  or how very reasonable it would be to pay that 4% for a longer, richer retirement, out of an income that will be more than twice what it is today.

That might be a politically difficult concept where neither side is being honest.  The “right” want to cripple Social Security for essentially ideological reasons.  And the “left” wants “the rich” to pay for Social Security… for essentially ideological reasons.  But as you note, the essense of Social Security is that the workers pay for it themselves.

Moreover, that 4% can be reached over a period of nearly eighty years.  To do it without ever reaching short term actuarial insolvency would require about a one tenth of one percent increase in the tax (combined) each year starting very soon,  or a one tenth of one percent increase in the tax (for each the worker and his boss) starting in about 2018 and running through abut 2033…  or some combination.

Further increases of one tenth of one percent (each) would be needed at a decreasing frequency, such that by the end of the 75 year actuarial window, the rate increases would be about one tenth of one percent every ten years…  again, while wage are projected to be increasing over one full percent per year.

And again, this would be neither a burden nor unfair to the workers.  They would get the money back over a longer retirement, and at a higher standard of living in retirement than current workers.  Moreover they would have at least twice as much money in pocket AFTER paying the tax as they have today.

The problem may indeed be “political,”  because neither side is honest enough to recognize this simple solution.

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ONE NATION UNDER AARP….a review

A book review by Dale Coberly

ONE NATION UNDER AARP  The Fight Over Medicare, Social Security, and America’s Future
by Frederick R. Lynch

I was asked to write a review of this book, perhaps because I sometimes write about Social Security. But I had to completely rearrange my perspective in order to even understand what the book is about. I believe that I know that the “Social Security crisis” is essentially a lie. Lynch assumes that the crisis is real and writes about AARP’s efforts to make itself the spokesperson for the Boomers in the “generational war” that will follow from this “fact.”

Given that politics has nothing to do with facts, Lynch and AARP may be on the right track.
Lynch introduces his book by describing a conference hosted by AARP… “to demonstrate to…boomers that AARP… is no longer their parents’ AARP… A rebranded AARP is actively recruiting seventy eight million graying baby boomers. The mating dance of these organizational and generational giants has enormous implications for the nations’ political future. … half of the voters in the 2008 and 2010 elections were over fifty… and half of them were members of AARP… the nation’s fourth highest spending lobby…”

Okay, that’s why. But then Lynch just assumes “…an epic fight over…Medicare and Social Security is being forced by the ballooning national debt.”

In fact Social Security has nothing to do with the “ballooning national debt.” And Medicare so far has had nothing to do with that debt and need not do so in the future. The ballooning national debt has been caused by tax cuts, military spending, and a deep recession caused by unregulated banks “too big to fail” indulging in reckless if not criminal activity.

Social Security is paid for by the workers who will get the benefits. Medicare can and should be organized so workers pay directly and transparently for their own health insurance. The huge cost increases predicted for Medicare are driven by the huge cost increases predicted for medical care. Only a fool would decide that if we are expecting huge medical costs we need to cut our insurance. Even if we can’t control costs… and we can… we are still going to have to pay for them. The easiest way is to pay a little at a time each month while we are young and working. It doesn’t make much sense to “save” the cost of insurance now and be faced with unpayable costs when you are old and no longer working. Only Medicare allows people to pay in advance this way AND to finesse the problem of “medical inflation” with pay-as-you-go financing. But “only a fool” is what we have in Washington these days.

But IF Social Security is being blamed for the deficit, however falsely, THEN boomers will need leaders to defend it. The most likely candidate is AARP.

Lynch says his book examines three key issues:
1.) Are the boomers a sleeping political giant? Can they be organized to determine the policy that will shape the future of Social Security?
2.) Is AARP going to lead the boomers… or “stimulate boomers’ age awareness to entice them into becoming members and purchasing AARP products and services…?”
3) Will boomers and AARP “negotiate an increasingly competitive global super-capitalism… in which “working class Americans feel threatened” but “the nation’s elite — highly educated professional and managerial classes — embrace the new Post American Order?”

I may be the wrong person to be reviewing this book because I cannot get past the premise. Lynch ASSUMES “generational war,” ASSUMES that “Younger Americans will be asked to subsidize aging baby boomers’ entitlements.”

And this is simply not true. The boomers will have already paid for their Social Security and Medicare. “Younger workers” will be asked to pay, in advance, for their own Social Security and Medicare. That’s how insurance works. It is only the success of the Big LIe that has convinced them… and the Washington “elite”… that “pay as you go” means you are paying for someone else’s greedy grannies.
Apparently these people think that when you “invest” in a stock, or just put your money in the bank, it lies there breeding interest like bugs in a drawer. The fact is that ALL “saved” money has to be used… spent… by someone else to earn interest. What is important is that you get the money back when you need it. Social Security provides the best guarantee in the world that you will get your money back… and more, if you need it. That’s what makes it insurance.

It is worth noting that even the Big Liars are always promising that “if you are over fifty five, your Social Security will not be affected.” That pretty much eliminates “paying for the boomers.” It is the “young people’s” Social Security that they are trying to kill.

Perhaps the boomers, and the young people who may someday grow old in spite of themselves, will need AARP to represent them. But it is by no means clear that AARP understands Social Security or cares about the interests of old people. Instead, perhaps, it just wants a seat at the table, the power that that represents, and of course the business that comes their way as a result of being seen as the retirees representative in Washington.

I don’t know.

But if Lynch is right and AARP is the best hope we have in the game the “elite” are playing with our retirement security, then others more attuned to real politics than I am may want to start by reading his book.
And maybe they can see if there is a way to influence AARP’s influence on the phony “generational war.”

They would have this much going for them: Lynch quotes AARP CEO Bill Novelli,

“But when you get down to the level of needs, everyone needs health and healthcare and they need long-term financial security. Then, when you get down to the level of values, all generations are the same: they want a better world for their children and grandchildren; they want to leave the world a better place and to leave a legacy. These are common values, and that’s what we’ve built upon.”

And what they would have going against them is that unfortunately these values are not shared by the “elite” leaders of both parties and their sponsors, who want only what’s in it for them, here and now. And know how to lie to get it.

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