Friday, December 24, 2004
EVEN MORE SOCIAL SECURITY
Well, actus tried again, and came up with nothing but a bunch of inaccuracies and spurious logic. Below are my initial comments, then actus’ comments in italics, followed by my response.
'First, the "floor" in Chile's system was put there when the system was first reform. it wasn't added on later in response to some "major problem" that appeared due to privatization. The fact is the system has worked just fine and the vast majority of workers are better off.'
They're better off because the government provides a guaranteed floor -- so basically the taxpayer picks up the downside risk, the benefitee the upside risk, capital gets the moolah, and the financial industry gets the higher administrative fees. Paradise.
First off, the worker and the taxpayer are pretty much one and the same. It’s just that in Chile the worker now gets to invest his own tax money instead of putting it into a transfer program like our current Social Security system. And that’s why the worker is better off: because they have invested in the stock market and realized higher earning, not because the government has assumed some sort of "risk". The fact is that the Chilean program has been so successful that the cost to the taxpayer of providing the floor has been next to nothing, meaning that it is a case of risk in theory but not in practice. And the administrative fees amount to about 1% of assets under management, pretty much the going rate in the U.S. mutual fund industry.
The phrase "capital gets the moolah" is a little vague. Actually, the holder of the personal account gets the moolah in the long run. If you mean that capital markets get the moolah in the short run, well, so what? What do you think they do with it, put it under a mattress? Invest in Mongolian yak futures? Rather, it goes into new products, new companies, expansion of existing companies, new technologies—all of the things that make everyone in our society wealthier.
You know, the left really need to stop their "Capitalism-only-works-for-the-fat-cats-so-that’s-why-you-need-us-social-activits-to-fight-for-government-programs-to-protect-you" shtick. It’s wearing a little thin.
'It is a huge liability for taxpayers, and what actus, Krugman and the like do not wish to address is where will the money come from to pay for the bonds in the trust fund once the system no longer has enough revenue to pay for benefits?'
But thats not a problem for SS, thats a problem for the general fund. The bush solution of issuing bonds doesn't solve this problem. The democrat's solution of working towards budget sanity does. The bush solution of taking away income from an underfunded system is simply nonsense.
No, it’s a problem for taxpayers you fool! The money for Social Security and the general fund come from the same source: our paychecks. If you don’t believe me, get a job sometime and a take a careful look at your paycheck stub. You’ll notice that there is a line for federal taxes, which is what goes to the general fund, and a line for FICA, which funds Social Security an Medicare. If Social Security relies on the general fund to make up revenues, where will the general fund get those revenues? Not from a Social Security fairy. It will come out of the "federal taxes" line of your paycheck. Which means, ultimately, the taxpayer.
I’m not certain which Democrat plan for budget sanity he is referring to. Is that the one proposed by John Kerry that raised taxes by $900 billion and raised spending by $2 trillion? Hmmm, let me do the math on that…
So President Bush’s plan to rely on bonds makes no sense, but the current system that relies on bonds does? Actually, Bush’s plan makes perfect sense because its use of bonds will be used to fund personal accounts, i.e., things that generate real wealth. Eventually, those who take the account option will have the amount they get from the Social Security system upon retirement reduced. This leads to a Social Security system that does not have t pay out as much in benefits. Eventually, the amount it pays out in benefits will be reduced to the point that the system will again run a surplus. When that happens, the surplus will be used to pay back the bonds borrowed for the purpose of reforming the system.
Under the current system, well, there is no plan. Just keep putting bonds in the trust fund, until the system starts running deficits in about 2019. When that happens, use the bonds to make up the difference, although no one knows where the money will come from to pay off those bonds. And once the bonds run out, well, no one really knows what we’ll do then. Yep, that’s a really good plan.
'One of the benefits of switching to a system of personal accounts is that we will stop putting money in the trust fund, where the government just owes itself, and start putting the money into real assets in capital markets.'
How illiterate are you? Government debt is a very real asset. So real that its considered the risk-free rate of return. Its the one asset price against which all others are measured! And why should we promote asset price inflation by increasing the demand for it anyway?
I love it! Someone so ignorant questions my literacy! Apparently actus doesn’t know the difference between owing someone else money and owing yourself money. You see if I take out a loan to buy a house, say $100,000, then the bank that gave me the loan is $100,000 wealthier, assuming I pay it off. (And for all you lefties in the "Capitalism-only-works…" school of thought, I am now wealthier too because I have a house that I wanted that I will someday be able to resell.) But if I decide to loan myself $1,000—if I take $1,000 out of my bank account and write myself an IOU for it—I am not $1,000 wealthier. That IOU isn’t a real asset since I’m just shuffling money around. Well, that’s pretty much what the government has done with the Social Security trust fund. Since all portions of the government (Social Security, general fund, etc.) get revenue from the same source, the taxpayer, the bonds in the trust fund are not real assets, just money that the government owes itself.
But actus shouldn’t take my word for it. Try that recent OMB report that said the trust fund was good not until 2042, but 2052. It reads,
Social Security's finances are often discussed in terms of the trust funds that are used in the federal budget to track outlays and revenues over the life of the programs. Those trust funds are mainly accounting mechanisms and contain no economic resources. [Italics mine].
I guess those folks up at OMB are al a bunch of illiterates too.
'But that borrowing will be paid back once the system is returned to solvency and starts running a surplus.'
But this borrowing is paid back from the same source of money as is going into the current system. Either the money is going there or it isn't.
Again, the reason that "same source"—i.e. the Social Security system—can pay back the money is that it won’t be paying as much in benefits as it would if we kept the current system.
' With the current system, solvency never returns, barring huge benefit cuts or large tax increases.'
Or productivity increases or demographic changes. Or future generations deciding to spend more or less on their aged and infirm. A choice that we ought not to make for them.
Productivity increases won’t do much to make Social Security more solvent. Since the ultimate result of increased productivity is wage growth, and Social Security benefits are indexed for wage growth, all increased productivity will do is add to the problem. As for demographic changes, well, there are none on the horizon that I see—our nation is growing wealthier, and wealthy nations tend to have fewer children. So the worker-to-retiree ratio probably isn’t going to improve anytime soon.
And what is this nonsense about not making a choice for future generations? How does what we do today with Social Security prevent a future generation from deciding how much they will spend on the aged and infirm? Oh, you mean that what we decide today will have an effect on the choices they get to make? Fair enough, but by that logic, it was wrong for FDR to have created Social Security in 1935, since what he did then affects our choices today. And while we are at it, let’s stop spending more money on public schools since spending on that will effect the choices of future generations. I’m sure a lefty like actus would go for that, no? Why, if we do a reductio ad absurdum, we should all just do nothing but crawl into caves and eat bugs—oh wait, even that will have an effect on future generations.
Guess we need to solve that space-time continuum thing. Wonder if Paul Krugman has that one figured out. After all, he is pretty smart!
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Thursday, December 23, 2004
MORE SOCIAL SECURITY
My recent post at Oh, that Liberal Media has inspired some comments about Social Security reform, including the many of the usual left-wing deceptions. Let me deal with them here.
The fact is "actus" doesn't know what he is talking about. First, the "floor" in Chile's system was put there when the system was first reform. it wasn't added on later in response to some "major problem" that appeared due to privatization. The fact is the system has worked just fine and the vast majority of workers are better off.
Second, that $3.7 trillion figure is deceptively low, and the notion that Social Security is fine for many years to come (2042 if you believe the actuaries, 2052 if you believe CBO, and about that CBO report, go here) is disingenuous. That only works if you count the stupid Social Security trust fund as an asset. But the trust fund has nothing but government bonds, i.e. IOUs, in it. It is a huge liability for taxpayers, and what actus, Krugman and the like do not wish to address is where will the money come from to pay for the bonds in the trust fund once the system no longer has enough revenue to pay for benefits? When you look at the trust fund as a liability for taxpayers, the amount we are on the hook for is much higher, exceeding $6 trillion easily.
One of the benefits of switching to a system of personal accounts is that we will stop putting money in the trust fund, where the government just owes itself, and start putting the money into real assets in capital markets. Yes, we will still need to borrow money in the short term to keep paying for benefits (although we would have to borrow a lot let if the wise men and women in Congress ever got enough stones to cut some spending—the $70 billion in corporate welfare and the $15 billion in pork-barrel "earmarks" would be a hell of a good start). But that borrowing will be paid back once the system is returned to solvency and starts running a surplus. With the current system, solvency never returns, barring huge benefit cuts or large tax increases.
So the question to actus and all other folks defending the system, which of those other two options do you prefer?
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TRAVEL
Sorry for not posting yesterday. Traveled back to California for vacation.
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Tuesday, December 21, 2004
MEDIA BIAS AGAINST SOCIAL SECURITY REFORM
Yep, it was inevitable.
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HOW I LOATHE THE POST OFFICE
Yes, I had to enter the belly of the beast today. I arrived at about 1pm to find a line reaching almost to the door. Ever notice that when you are in a grocery store and a line begins to build at one check out station, another worker shows up to open a new check out station? That’s how it works in the private sector. The post office? Well, today there were four spaces at the counter; workers were behind two of them. The line stayed that long for as long as I was there. It was a good ten minutes before another worker showed up to man another one of the spaces behind the counter. The fourth space never did open up, at least while I was there. Ah, bureaucracy is beautiful!
While I’m waiting with nothing to do, I amused myself by counting the number of times the phone rang in the back with nobody answering it. At one point I think I counted thirteen rings. I don’t know whether someone at the post office finally picked it up. If I had to bet money, I would say that the person on the other end of the line just gave up.
One of the women behind the counter looked about as happy to be there as you would look if an I.R.S. agent showed up on your doorstep. Guess she forgot to attend the customer-service training seminar.
When it was finally my turn, I was fortunate enough to not have to deal with her. Nevertheless, when I got to the counter I told the woman that I did deal with, “Merry Christmas.” You should always be nice to a civil service employee who cannot be fired, especially when your mail arriving in a timely fashion depends on it. My interaction with her was pleasant, and then I was on my way.
On my way back to work, I stopped off at “Julia’s Empanadas,” a nice little place where you can pick up nice little things to eat. No one was at the counter when I entered, but the clerk showed up in about fifteen seconds. I told her what I wanted, paid for it, and was on my way. Quick. Thank God for the free market!
When I got back to work, it was 2pm. I think you can figure which stop ate up the majority of my time.
What are the arguments against privatizing the Post Office again?
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LUSKIN, KRUGMAN, AND KINSLEY—A CLASSIC COMBINATION!
Don Luskin has a great piece in NRO today on Paul Krugman’s latest deceptions on Social Security. Over at Poor and Stupid, he has a list of reader responses to Michael Kinsley’s dunderheaded screed against reform. Read them both. Now. Well, what are you waiting for? A kiss? GO READ THEM! NOW! MOVE IT!
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Monday, December 20, 2004
CAPITAL RESEARCH CENTER PUBLICATIONS
My place of employment, Capital Research Center, puts out monthly publications: Compassion and Culture, Labor Watch, Organization Trends, and Foundation Watch.
FYI: I have authored this month’s Foundation Watch about a relatively new environmental group, Oceana. Enjoy.
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HOW THE LEFT VIEWS THE WORLD
Found this article via Michelle Malkin about a tax revolt in Berkeley. Well, tax hyperventilating is more like it. This column by Louis Freedberg is interesting not so much because of the minimal resistance to higher taxes (which won’t last long, I’m sure) but for what it reveals about the way lefties like Freedberg look at the world:
First,
As someone who has lived for much of his adult life in Berkeley -- and willingly paid extra property taxes so Berkeley could remain one of the world's most livable and innovative communities -- even I couldn't bring myself to vote for all the latest tax measures this time around.
I visited Berkeley many times when my brother attended school there, and still occasion a visit, the last being in December 2002. If Berkeley is Freedburg’s idea of “liveable,” then North Korea must be his vacation hot spot! Perhaps in outer areas of Berkeley where a well-paid columnist like Freedburg lives is quite nice, but the downtown is cesspool. It’s a great example of “if you build, they will come,” as in if you fund a lot of programs for drug-addled bums—er, excuse me—the homeless, they will flock like pigeons to a discarded taco. The place is just a left-wing fiasco: high taxes, rent control, dirty streets, panhandlers, a radical campus. Mao, Pol Pot, Stalin, and Castro would all feel right at home.
Then there is this little gem:
I was incensed to see President Bush and Arnold Schwarzenegger make cutting taxes the centerpiece of their respective campaigns -- and winning. I realized that voters in Berkeley (and San Francisco, and other similar communities who are not against taxes on ideological grounds) have in effect been enabling Bush and Schwarzenegger to continue on their anti-tax crusades. By continually voting to impose higher taxes on ourselves to keep essential services going, we have made it easier for them to carry on as if the taxes they're cutting weren't needed in the first place.
In other words, it’s the fault of tax cutters in D.C. and Sacramento that Berkeley has to impose higher taxes on itself. You see, when Bush or Schwarzenegger cuts taxes (actually, Ah-Nuld hasn’t cut any taxes yet; California is still waiting), it creates a magic gun which is put to the head of every Berkeleyan with the warning that the trigger will be pulled unless they pull the lever for local tax increases. And you thought voting in the nation was a relatively intimidation-free affair!
Whatever the causes, the results of the tax cut backlash aren't pretty. Berkeley will have to figure out how to cut $7.5 million from next year's budget. San Francisco and other Bay Area communities are even worse off. Yet our brave tax-cutting leaders in Sacramento and Washington continue give back taxes while they raid local treasuries. Just this year, Bates said, the state appropriated $1.6 million in local property taxes that should have gone to the city. ''It's the big fish eating the little fish,'' he said.
Permit me to translate: When taxes are cut at the state or national level, it is harder for the local government of Berkeley to sponge off of taxpayers who haven’t had enough good sense to live in the enlightened city. It means that Berkeleyans have to fund their bloated, worthless government programs with their own money. Oh, the OUTRAGE!!!!
It also wouldn’t kill Freedburg to do a bit of math. That $1.6 million the state took from Berkeley (I would hope that would be a lesson in the nature of government to Freedburg, but I bet it won’t be) comes up about $5.9 million short of covering the budget hole. After all of the taxes Berkeley has imposed on itself over the years, how could it possibly have a budget deficit? I don’t know, let me take a wild guess—too much spending?
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Sunday, December 19, 2004
THAT’S EMBARASSING, PART II
Darn it! Should have done a Google search first. Sullivan is probably not trying to get back in the good graces of the political left. Rather, he is trying to get back at Michelle Malkin for calling him on his pledge drive.
That’s rather petty.
And still very embarrassing.
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SAD STATE OF COLLEGE STUDENTS
I encourage you to read Walter Williams latest column, recounting some horror stories about current state of affairs at our universities and colleges. I was inspired to email him some of my own stories back when I was teaching, which I reprint below:
I had taught a lot of Introduction to American Government as a graduate student, and noticed that my frustration grew over the years as my standards dropped (inversely proportional?) Anyway, when I first came to work at the Public Interest Institute in Iowa, it was part of Iowa Wesleyan College. IWC asked me to teach the Intro class for them, which I agreed. As an essay assignment, I told my students to find an op-ed or an opinion column they disagreed with and, over the course of the class, I would show them how to write an essay disagreeing with it. As the first part of the assignment I had them bring in the op-ed or opinion column for me to approve. My mistake? Assuming they knew what an op-ed or opinion column was! A bunch of them were inner-city Chicago kids, and apparently had never picked up a newspaper, let alone pick up a magazine like National Review or The New Republic (what was I thinking?) As a result, I received a lot of front-page newspaper stories (unfortunately, none from the New York Times where one could make a case that a front-page story really was an opinion piece.) It finally occurred to me that I could never assume too much about college students' ignorance. Anyway, realizing the sheer torture that was in store for me when I actually had to read the essays, I found some excuse to cancel the assignment.
The second was at the local community college where I taught the Intro class the following summer. I had stopped giving essay assignments, but kept the short-essay format for the exams. I had one student who always seemed to think he was going to ace the exams and then stewed silently when he received something less than an A—as he always did. He never came by my office to discuss with me how he could improve his performance. Finally, at the end of the class, he told me, "You need to switch to multiple choice exams." I replied, "Future employers will not be impressed by your ability to take multiple choice exams."
Needless to say, that was the last time I ever taught a course.
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