Krugman Is Back, Briefly

The Social Security debate compels the Earnest Prof to take a break from his break and re-write history:

...the politics of privatization depend crucially on convincing the public that the system is in imminent danger of collapse, that we must destroy Social Security in order to save it.

...since the politics of privatization depend on convincing the public that there is a Social Security crisis, the privatizers have done their best to invent one.

Oh, it was privatizers on the right that invented the Social Security crisis?  Then when Bill Clinton insisted in his State of the Union that we "Save Social Security first", what was that about?  And why did Al Gore keep going on (and on,and on) about his "lockbox"?

We all know the answer - Back in the era of budget surpluses Social Security was in a crisis discovered by Bill Clinton so that no one could cut taxes until Social Security was "saved".  Well, Republicans (with some Democratic votes) cut taxes without saving Social Security, but the public perception of crisis lingers.

Bill Clinton started this fire, but it was George Bush who brought the hotdogs and marshmallows.  My Metaphor-Mixer is pointing towards "Reap what you sow".

UPDATE.  Surprise, surprise - it wasn't just Clinton and Gore sounding the alarm.  Try and guess what well-known (and once well-regarded)economics writer used the phrases "Ponzi game" and "crisis ahead" when writing about Social Security back in the 90's?

Well hey, a guy can change his mind.  Back in 1996, when Bob Dole was campaigning on a tax cut, the long term federal deficit was in "serious trouble", and the US had demographics that were "devastating".  Social Security was no longer a crisis in 2001, when the Bush Commission was contemplating private accounts; it became part of a long term solvency crisis again (briefly) in 2003, when Bush's second round of tax cuts were being mooted; and, based on the current column, the Social Security crisis has passed us by.  Whew!

Now, future fun alert - next summer, Bush may be pushing both tax cuts and Social Security reform.  Since Krugman has two columns a week, maybe Social Security will be in crisis on Tuesdays, but fundamentally sound on Fridays.  I can hardly wait.

UPDATE 2:  Hmm, I learn from Dean Baker that [i]n their 1998 Report the Trustees of the Social Security System project that over the next seventy-five years the U.S. economy will grow at an annual rate of 1.4%, less than half the rate of growth of the past seventy-five years.

These gloomy (or conservative) forecasts under Clinton cpresumably helped promote a sense of crisis, which certainly worked for Clinton, as noted above.  However, as Dean Baker observes, if the economy is going to perform that poorly, who would expect the stock market to perform well?

Fair enough.  And we are back to aphorisms now - the real issue is, how do we best grow the economy over the next fifty years?  Arguments about how to slice the pie should follow an agreement about how best to bake it.

I need to dig up some pro-privatization rhetoric - my guess is that there will be some material for the compost heap readily available.  I say that because (IMHO) people focus on actuarial details and slide right by the the real reason for privatization. 

The secret is hiding in plain sight, of course - it is Bush's push for an ownership society.  Make people capitalists; then get them to vote like capitalists.  Some Dems oppose this for the same reason that union organizers don't like employee stock ownership plans - it is harder to promote an "us-them" divide when we are they.

UPDATE:  Krugman supporters (led by commenter JS) are staging a bit of a rally - In 1997, Krugman disavowed his 1996 book review fretting about Social Security that was linked above.  The real problem is Medicare, not Social Security.

Hmph.  In the 2003 column (also linked above) mentions Social Security and Medicare as problems.  If everyone else is publicly worrying about Social Security, and he does so in his own column, don't come back later and tell me he "really" meant that the problem was mostly Medicare.  He chose to exploit the popular fears at the time, and we are going to mock him now.

Comments

[Paul Zrimsek]

Why should the overall surplus be no less than the combined surplus of the trust funds? Or, to use Washington jargon, why should we put those trust-fund surpluses in a 'lockbox'? First, because we know that the projected surpluses in Social Security and Medicare, though enough to postpone the eventual crises in the two systems, are not enough to put off those crises forever.

--Paul Krugman, "Going for Broke", TNR 5/21/01

[Jim Glass]

Krugman says...

"...the politics of privatization depend crucially on convincing the public that the system is in imminent danger of collapse, that we must destroy Social Security in order to save it."

While the politics of the status quo-ers, like Krugman, work this way...

"Suppose that a member of Congress introduced legislation called 'the Social Security Do Nothing Act.' Under this bill, promised retirement benefits would be cut by 16 percent for today's 30-year-olds, by 29 percent for today's 20-year-olds and by 35 percent for today's newborns. Alternatively, payroll taxes would go up by roughly 40 percent in 2041.

"How many politicians would rush to endorse this bill?

"What is remarkable is not that reform plans engender such heated debate, but that the Do Nothing Plan engenders so little outrage.

"Worse yet is the fact that no one will have to endure the scrutiny and ridicule of specifically advocating the Do Nothing Plan in order for its absurd consequences to take effect.

"The Do Nothing Plan has already been enacted. It is current law."

http://www.concordcoalition.org/releases/021003release.htm
~~~

So Krugman endorses the Do Nothing Plan, and is happy, there's hardly any problem at all there.

Let's just hear him say it explicitly: "I endorse the Do Nothing Plan".

Rather than have him tag along with the Times' editors' line of "there's some little thing we can do to solve all problems, and it's certainly better than your idea, we just won't say what it is."

[Patrick R. Sullivan]

And, of course, during the Clinton years, Krugman thought about SS a little differently, using words like "Ponzi scheme", "drastically reduced standard of living", "huge tax increases", and even "crisis":

http://flyunderthebridge.blogspot.com/2004/12/paul-vs-paul.html

[Jim Glass]

"Ponzi"? What?? Would Krugman call Social Security a Ponzi scheme??

"Social Security ... has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in. Well, the Ponzi game will soon be over..."

http://www.bostonreview.net/BR21.6/krugmann.html

[Andrew X]

"We must destroy XXX to save it..."

Yap yap yap. Wish I knew the blog that posted it, but apperently "We had to destroy the village to save it" was "quoted" by a Vietnam US officer to..... Peter Arnett.... who is right up there with Dan Rather in the credibility department. There is absolutely no source or confirmation whatsover for that quote other than Arnett's reporting. And, suffice to say, his agenda and Ernie Pyle's or Ed Murrow's are not quite in sync.

There is a decent argument that the "village" quote was NEVER said... certainly not by any US officer. Ah, but what a juicy quote it is, iddnit? Just encapsulates every argument the Left offers to oppose any effort to confront totalitarianism. And now it lingers through history. A hundred years from now, students will be taught about the officers who had to "destroy the village to save it"... when by all likelihood it is journaLeftism example #67,891, and was "if not true, it oughta be". Mayhaps, "too good to check"?

How about "false, but accurate".

[A Tiny]

Bill Clinton started this fire, but it was George Bush who brought the hotdogs and marshmallows.

Yes, that's exactly right.

Interestingly, it's precisely the same situation as with Iraq. Clinton told various medium-sized lies about Iraq and WMD in order to carry out certain policies (maintaining the sanctions, etc.). Then the Bush administration told gigantic lies to justify more radical policies (invading Iraq).

And let me tell you, the threat from Social Security insolvency is every bit as terrifying as the threat from Iraq's WMD.

[M. Simon]

Chile, (I think) privatized their Social Security.

Why hasn't any one done a bit on the consequences?

[Bruce Hayden]

Tiny,

Yes, that Bush lied about Iraq is liberal dogma, but, with a lot of conventional wisdom, it is not true.

He stated a number of reasons for invading Iraq. Reread his State of the Union speech given right before the invasion to refresh your mind. He said the Brits believed that Saddam Hussein was trying to buy enriched uranium in Africa. They did say that. And Saddam probably was - read the CIA report release this summer.

It would only be surprising if Mr. Bush had not believed that Iraq had an active WMD program at that time. There were no indications to the contrary. The French, the Russians, the British, Mr. Clinton, et al., all believed that Iraq had such a program. Indeed, it is still unclear why Mr. Hussein was playing chicken until the end - except maybe to protect himself against another Iranian invasion.

But being wrong is very, very, different than lying. Esp. here when all intelligence was to the contrary. (Which is one reason that the CIA is currently being overhauled).

But then, I don't think that Mr. Clinton lied either on this subject. Maybe about his sexual dalliances. But not something as monumental as national security. He may have been inept about fighting the War on Terror, but clearly not dishonest.

[Grumpy]

They have... but you won't read about it in the MSM. It's too successful.

See here: http://www.socialsecurity.org/pubs/ssps/ssp-17es.html

[A Tiny]

Bruce,

As far I know, Bush himself didn't lie about Iraq's WMD. In fact, I doubt he knew anything at all about the subject, so he really couldn't have lied about it.

However, Clinton did quite consciously lie. So did (as I said) the Bush administration -- specifically Cheney, Rumsfeld, Rice and Powell. So did Blair. (Details on request.)

You're also wrong that there were no indications to the contrary. Certainly I perceived such indications, since I bet someone $1000 about it. (As it happens, the person I bet was also a member of the IEEE.) And it obviously wasn't just me -- many people within the US and British governments believed the same thing, as did Scott Ritter, Hans Blix, and many former UN inspectors. Furthermore, Putin said there was no evidence Iraq had anything.

Again, this is exactly the same situation as with Social Security. I'm sure you believe that "everyone" agrees something needs to be done, just as you believe that "everyone" agreed Iraq had WMD. It wasn't the case with Iraq, and it's not the case with Social Security. And in both cases, the people who apparently don't exist are correct.

[A Tiny]

Bruce, also --

You're incorrect about the evidence regarding Iraq seeking uranium. I have in fact read the Senate report. (Not as a hobby, but because I follow this professionally.) And while I don't mean to seem snippy, I suspect you yourself have not. Instead, you most likely just saw some misrepresentation somewhere. You've probably also seen misrepresentations of what the Butler report in England said on this subject.

Anyway, the final CIA report categorically says there's no evidence Iraq sought uranium from abroad. See pages 9-11 of the Nuclear section of Volume II.

http://www.globalsecurity.org/wmd/library/report/2004/isg-final-report/isg-final-report_vol2_nuclear-03.htm

ISG has not found evidence to show that Iraq sought uranium from abroad after 1991...

Regarding specific allegations of uranium pursuits from Niger, [Iraqi nuclear program head] Ja’far claims that after 1998 Iraq had only two contacts with Niamey--neither of which involved uranium...

Ja’far acknowledged that Iraq’s Ambassador to the Holy See traveled to Niamey to invite the President of Niger to visit Iraq. He indicated that Baghdad hoped that the Nigerian President would agree to the visit as he had visited Libya despite sanctions being levied on Tripoli. Former Iraqi Ambassador to the Holy See Wissam Zahawie has publicly provided a similar account....

So far, ISG has found only one offer of uranium to Baghdad since 1991--an approach Iraq appears to have turned down...

***

Interestingly, the ISG also concludes that Mahdi Obeidi, the Iraq nuclear scientist who hid documents and centrifuge parts in his garden, did so on his own without regime approval. (See page 73.)

Finally, you're incorrect that Saddam's behavior is some kind of mystery. It's perfectly comprehensible, and completely congruent with Iraq having nothing.

[Sepfert]

I suppose that "A tiny" refers to the size of your brain? Or is it penis?

[Jor]

Wow, A Tiny, are you reading what you are writing? LOL. That's all I have to say. Seriously, the right has no shame. TM, when are we going to stop blaming everything on Clinton? Will Clinton be responsbile for the next four wars? Seriously, the party of personal responsiblity for the poor -- but free rides for the rich and powerful.

[A Tiny]

Sepfert,

"A Tiny" actually refers to both my small brain and small penis. I knew someone would figure it out sooner or later.

Nonetheless, everything I said is accurate. Please don't shoot the tiny-brained, tiny-penised messenger.

[Neo]

This guy really cracks me up .. "build up a trust fund". I suppose that he believes in Al Gore's "lock-box" too.
The truth is that all the money that isn't spent by the Social Security Administration is spent, excuse me, borrowed and then spent by the federal government.
In 2016 or 2017 or 2022 (you pick one) when new SS revenue is outstripped by SS spending, the remaining SS deficit will have to be made up by the federal budget. Even worse, the SS deficit is projected to grow every year so it's (payback) drain on the federal budget will continue to increase.
Now I expect to be retired by then, but you younger folks who are still working will have to pony up a bit more. Some say that it won't be that bad because the retirees will be cashing in their 401k's generating additional revenue, but it won't be enough.
The whole plan to privatize is based on allowing the younger contributors to believe there will be something there so an all out generational war doesn't break out. It's a bit of a fool's bargain, but it's the only bargain we will have a chance to implement.

[A Tiny]

Jor,

What it is you specifically disagree with? The basic story is this:

Clinton had very limited room to manuever on Iraq, because he was attacked ferociously from the right any time he made a feint in a more sensible direction. This started even before he took office in 1993.

So, there was no way the Clinton administration was going to take the chance of lifting sanctions on Iraq. But under the relevant UN resolutions, they had to be lifted if Iraq were found WMD-free.

The Clinton administration had a good idea this had happened by 1995 at the latest, when Hussein Kamel (Saddam's son-in-law and head of the WMD programs) defected. Kamel told them Iraq had no weapons left, and hadn't since 91. Now we for certain that's true.

However, for domestic political reasons, Clinton and others lied about what Kamel said and what was generally known. They covered up the fact he'd claimed Iraq had no remaining weapons. In fact, Clinton said just the opposite -- that Kamel had said Iraq was hiding weapons.

At the same time, the Clinton administration was turning down repeated peace feelers from Iraq. I've pasted the relevant parts from the ISG report in below.

This is pretty bad, particularly since the 9/11 attacks grew directly out of Clinton's policy toward Iraq. Still, it's (arguably) not as bad as Bush's actions.

***

http://www.globalsecurity.org/wmd/library/report/2004/isg-final-report/isg-final-report_vol1_transmittal-letter.htm

Saddam's view of the United States was complicated. He accrued power and prestige far beyond his inherent weight by positioning himself as the only leader to stand up to the last superpower. To the extent that you assume some of the stature of your enemy, Saddam derived prestige from being an enemy of the United States. Conversely, it would have been equally prestigious for him to be an ally of the United State -- and regular entreaties were made, during the last decade to explore this alternative. [emphasis in original]

Saddam apparently calculated that Iraq's natural resources, secular society, and dominance in the region would inevitably force the United States to deal with Iraq (He may have been correct, but he mistakenly thought his leadership of Iraq was immutable.) Throughout the 1990s he tested Washington's willingness to open a dialogue. On multiple occasions very senior Iraqis close to the President made proposals through intermediaries (the author [ie, Charles Duelfer, in his then-capacity with UNSCOM-- JS] among others) for dialogue with Washington. Baghdad offered flexibility on many issues, including offers to assist in the Israel-Palestine conflict. Moreover, in informal discussions, senior officials allowed that, if Iraq had a security relationship with the United States, it might be inclined to dispense with WMD programs and/or ambitions.

-- page 4 of the "Transmittal Message" section of Volume I.

http://www.globalsecurity.org/wmd/library/report/2004/isg-final-report/isg-final-report_vol1_rsi-05.htm

Saddam did not consider the United States a natural adversary, as he did Iran and Israel, and he hoped that Iraq might again enjoy improved relations with the United States... [emphasis in original]

Throughout the UNSCOM period, Iraqi leaders extended a number of feelers to the United States through senior UNSCOM personnel offering strategic concessions in return for an end to sanctions. The stumbling block in these feelers was the apparent Iraqi priority on maintaining both the Saddam Regime and the option of Iraqi WMD.

In a custodial debriefing, Saddam said he wanted to develop better relations with the US over the latter part of the 1990s. He said, however, that he was not given a chance because the US refused to listen to anything Iraq had to say.

In 2004, Charles Duelfer of ISG said that between 1994 and 1998, both he and UNSCOM Executive Chairman Rolf Ekeus were approached multiple times by senior Iraqis with the message that Baghdad wanted a dialogue with the United States, and that Iraq was in a position to be Washington's "best friend in the region bar none."

-- pages 31-32 of the "Regime Strategic Intent" section of Volume I

Huwaysh, in a written statement, explained instead that Saddam briefed senior officials on several occasions saying, "We do not intend or aspire to return to our previous programs to produce WMD, if the Security Council abides by its obligations pertaining to these resolutions [UNSCR 687, paragraph 14 (ie, region-wide WMD disarmament -- JS)]. Saddam reiterated this point in a cabinet meeting in 2002, according to Dr. Humam 'Abd-al-Khaliq 'Abd-al Ghafur, the former Minister of Higher Education and Scientific Research.

-- Page 51 of the "Regime Strategic Intent" section of Volume I

[Paul Zrimsek]

At what point did getting an Instalanche change from blessing to curse? Are there important lessons to be learned from Iraq's disastrous experiment with SS privatization? Or have some of these guys forgotten that it's even possible to argue in any way other than by changing the subject?

[A Tiny]

Paul,

have some of these guys forgotten that it's even possible to argue in any way other than by changing the subject?

It's actually very much the same subject. That's my point. People believe something needs to be done about Social Security for exactly the same reasons they believed something needed to done about Iraq. And as with the debate over Iraq and WMD, the debate about Social Security includes tremendous deceit on the part of the Bush administration and its supporters. (It likewise includes many misunderstandings of the basic facts on the part of Bush supporters.)

Anyone who challenges this deceit is told (as with Iraq): well, Clinton said the same thing! Yup, he did. And he was also being deceitful, although (as with Iraq) on a smaller scale.

Really, it's kind of amazing to see the phenomenon repeating itself in exactly the same way.

[metis314]

A Tiny,

So what exactly do you believe to be the "misunderstandings of the basic facts" in regards to SS? You never mention them or the deceits, instead you go off on Iraq -- which does NOTHING to support your claim that the SS debate involves deceit on the part of reform proponents.

[Harry]

I'm confused too. "People believe something needs to be done about SS for exactly the same reasons they believed something needed to be done about Iraq"? SS is a gathering terrorist threat now? Is the SS system paying suicide bombers in Israel? Please, let's stick to the subject being discussed. Quite frankly, I'm tired of arguing about whether "Bush lied and men died" - the election is over, the American people are apparently satisfied with the job being done so let's discus the subject at hand: SS IS different. We don't have to rely on the CIA to understand the problems and future implications for our workers and our children.

This is simple to me. Neither the Republicans nor the Democrats have done anything to fix SS. And it DOES need to be fixed. Neo is correct. There is no trust fund in actual point of fact. There IS a big pile of "I owe me" bonds that will, in around 12-15 years from now, need to be redeemed to pay SS recipients when expenses start to exceed income, OR SS taxes will need to be raised, OR benefits will have to be cut. Those are the only choices available. The bond redemptions will come from general revenue.

Let's hear some discussion on whether the transition costs to a PARTIALLY privatized system even come close to the costs of DOING NOTHING. Jim Glass is right on the money here. The costs of the DO NOTHING risky SS scheme are immense compared to the $1-2 trillion transition to a partially privatized system as recommended by the SS study done during Bush's first term.

Check Chile and Corpus Christi TX as two examples of privatization. Also very good extensive discssion of all aspects of the topic on the Cato web site, among others.

[A Tiny]

Metis314,

In fact, the SS debate involves quite conscious deceit on the part of reform (or "reform") proponents.

Here's one example:

The only reason we're talking about this is because the SS administration has started forecasting very low economic growth for the US for the next 75 years. With growth at the level we've had over the past 75 years, there's little or no problem.

Now, when privatization proponents make proposals, they always do so by assuming 6-7% returns in the stock market for the next 75 years, because that was the rate for the last 75 years. BUT -- this is literally impossible with the rate of economic growth the SSA projects.

(Of course, hopefully we WILL have higher economic growth than projected. If we don't, the US will turn into one of the world's economic backwaters this century. But as I say, if we have such growth, then there's no "crisis." So, what's termed a problem with Social Security is actually a projected problem with the overall US economy.)

Anyway, I used to work for an economist named Dean Baker at a think tank in Washington. For over five years he has very patiently asked every proponent of privatization to provide projections of stock returns that are consistent with the SSA's overall economic projections.

Anyone with a normal background in economics should be able to do this in less than an hour. (Probably much less.) Yet not a single proponent of privatization has done so. The reason, of course, is that any such projection would show stock returns far below 6-7%... so much so it would destroy the argument for privatization.

In other words, privatization supporters want it both ways -- to say the economy's going to suck, so SS is in trouble, but we're going to have the stock market performing like it does with a good economy.

You can find some specifics of Baker's attempts to get privatization supporters to make projections at http://www.cepr.net/Social_Security/stock_returns_challenge.htm

As you'll see, Martin Feldstein, an extremely prominent economist at Harvard, took the time to write Baker an unpleasant letter calling him "simply wrong." But when he realized Baker was correct, he simply stopped responding. This is intellectual dishonesty on a pretty shocking scale, if you're the kind of person who gets shocked.

For more on this, see

http://maxspeak.org/mt/archives/000978.html

and

http://www.j-bradford-delong.net/movable_type/2005_archives/000041.html

Now, I'm going to go out on a limb here and bet this is a basic fact about this subject you weren't aware of.

Likewise, I bet before the war you weren't aware Saddam Hussein's son-in-law -- the head of Iraq's WMD programs and same person repeatedly cited by Bush, Cheney, Powell and Clinton as a trustworthy source -- said in 1995 that Iraq had no WMD, and hadn't since 1991.

Am I right?

[A Tiny]

Harry,

You may be tired about arguing about whether Bush lied about Iraq. But opinions differ. Certainly the people I know stationed in Iraq think it matters.

Likewise, most Bush supporters believe whether or not Iraq had WMD is important. However, a majority believes Iraq DID have WMD or a major WMD program.

Anyway, this "very good extensive discussion of all aspects of the topic" on the Cato website -- does it include the type of projection of stock returns over the next 75 years I mentioned above?

Again, this is an EXTREMELY basic fact about this debate. So, I'd like to know where to find Cato's extensive discussion of it.

[Abby]

The one answer would be to depend on ourselves for our retirement. That's what I plan to do, anyway. I'm 25 and already have a "nest egg" per se.

A bit of fiscal responsiblity goes a long way when you start young. I'm glad my parents taught me right.

Naivete? Perhaps. Realism? Definitely.

From my standpoint, it'd sure be nice to decide what of my money goes where when I'm ready to retire from a long life of hard work. But I guess what I think about myself doesn't count for much.

[Reid]

A Tiny: Your arguments reek of "verdict first, trial afterwards." You are obviously proceeding from a preconceived verdict and cherry picking your sources to suit it. It really isn't hard to do on almost any topic and, we aren't going to resolve the issue here. One day, the truth will be known when all of the relevant classfied information is released. Until that day, people such as you will continue to seize upon any ambiguity or any minor unresolved point and try to blow it up into something it is not, which is proof of intentional misleading by the current administration, of which there is none. I argued with people such as you about Alger Hiss' guilt in the day. We all know how that one turned out. Give it a rest.

This has nothing, zero, zilch, nada, to do with the Social Security debate. Your attempts to conceal the true situation by accounting legerdemain will get you nowhere. The incontrovertible bedrock fact is that we will soon have fewer than two workers supporting every retiree. If you don't see that as a problem brewing and prefer to hang out with that slut Rosy Scenario and her sisters, that is your affair. Enjoy your debauch. The rest of us have serious matters to which we must attend.

[A Tiny]

Reid,

I recognize your tone from before the invasion of Iraq. Then too many people explained they had to attend to the "serious matter" of Iraq's WMD, and had no time to waste with fools who said Iraq had nothing. (In fact, as I mentioned, I made $1000 off one such person.) I would think the truth regarding Iraq might have taught you some humility about the accuracy of your worldview -- and make you curious how you were so mistaken. Ah, well.

In any case, your frustration is understandable. But it has to do with reality, not me.

Anyway, I'm curious. What exactly is the "accounting legerdemain" to which you refer? If it exists, it should be easy for you to provide specifics.

[roublen vesseau]

You people have lost your minds. In 2000, we were running a surplus of 200 billion dollars. Whatever you want to call it, "lockbox" or "Saving Social Security" or whatnot, Democrats proposed devoting most of that surplus to paying down the debt. Republicans wanted to cut taxes. In other words, delayed gratification versus instant gratification. After becoming President, Bush had 200 billion dollars of free money to play around with, money he could have used to cut taxes, privatize Social Security, or do whatever the hell he wanted to do with it. But 200 billion dollars wasn't enough, and he had to go 400 billion dollars into deficit. In other words, he went from ordinary instant gratification to bingeing on large amounts of seed corn. Now Republicans are presenting a Social Security "plan" that proposes to borrow a great deal of money in the federal government's name, and then invest that money in the stock market, in private accounts. Since "everyone knows" that stocks always return 7% while federal borrowing only costs 3%, this procedure will Save Social Security "in the long run" (and yes, this is an accurate description of all the Republican privatization proposals). So now The Republicans have gone from delayed gratification to instant gratification to gorging on seed corn and finally now to a gigantic leveraged bet in order to make everything come out all right. And your reply to the people who have criticized this irresponsible nonsense is to call them reactionary fuddy-duddies who want to stop Bold Leader's Bold Plans. Just out of sheer hatred of Bold Leader, you see.

A sharp financial correction is not necessarily the end of the world, but it is not pleasant, and there are some of us who want to avoid one, if at all possible. Wake up. Quickly.

[A Tiny]

Reid,

Also -- and I really am not trying to be snide when I say this -- what you write about "two workers supporting every retiree" proves my point. That is, if there is a problem in the future, it will be with the US economy as a whole, not Social Security.

Let me explain.

ANY pension consists of current workers supporting retirees. "Saving" for fifty years from now doesn't mean storing food in a bunker that you will take out in 2054 and eat. Saving means a claim on a portion of the food, etc. that will be created in 2054.

Thus, it doesn't matter whether a pension is coming from the government, private investments, etc. It's all workers in the present supporting retirees in the present.

So, whether we have private accounts or not, if it's a problem to have two workers supporting every retiree, then it's a problem. But it's a problem with the overall US economy, not Social Security. (There are two exceptions to this. First, changing the SS system could theoretically increase investment now, leading to a bigger pie to divide in the future. Second, people could invest overseas, so their retirement was being supported by workers elsewhere. But when you look at it closely, neither of these things would make a significant difference.)

But that's all beside the point, because the whole worker/retiree thing actually isn't that important. According to the Social Security administration, we won't get to a 1.9 ratio until about 2061, which doesn't strike me as "soon." True, it will be declining from today's 3.3 as the baby boomers retire and will get close to two within twenty years. But workers in the future will be significantly more productive than today, and thus able to support more retirees.

It's not quite the same thing, but look at farms. There is a far lower farmer/other ratio than there was a hundred years ago. Yet we haven't all starved to death. That's because each farmer is now much more productive.

[A Tiny]

Even I don't understand why I've wasted so much time on this. But I have to waste a little more, and say this:

I'm both frustrated and bemused by the responses I've received here. None of them have included any specifics in response to my specifics. Instead, I've just been on the receiving end of a sort of generalized anger. (Either that, or I've received no response at all.)

America seems to be a really angry place these days... at least among a certain type of white men. I don't get it.

I also don't get the lack of humility regarding Iraq and WMD. If I'd been so unbelievably wrong about something so important, I'd have to seriously examine myself -- where I was getting information, how I was perceiving things, etc. I'd have to consider if all the other things I was sure about really were so certain. And I certainly wouldn't be snide to people who'd been right about what I'd been so wrong about. Yet if the Iraqi WMD debacle has prompted any such self-examination, I haven't seen it, online or in real life.

All of this depresses and concerns me. It doesn't bode well for the future.

[mstahl16]

As commonly occurs with these arguments over taxes and the economy, the fundamental point has yet to be brought up. Is SS actually a legitimate function of government in the first place? Aside from the 70-100 trillion of unfunded government obligations already in place, which makes discussion of the yearly budget deficit a tinkers folly, is it really the function of government to promote or more properly force an intergenerational transfer of assets? There is no justification of such a scheme which can tolerate even cursory inspection.

[Duke of DeLand]

mstahl16 has finally arrived at the point.

When has the US Govt. EVER begun a program which took our money and returned it all.....let alone an interest on that money?

NEVER.....and it is not going to do so with SS.

1st, the money is GONE. The govt. issued IOUs to cover their "borrowing" of the billions, but it is not there, thus not earning anything.

2nd, the projections I have seen indicate that men...
Primarily black men, but including white men, are not going to live long enough to receive back their input to the system! Forget any interest/earnings, etc.

Duke

[digitalbrownshirt]

President Bush has just concluded a goodwill tour to Canada for the professed purpose of mending fences. I've really been depressed about this as I detest the Canadians and have enjoyed immensely listening to their daily venting of their hate for us. Now comes Tiny and explains that since Bush lied about Iraq, it is only reasonable to realize that he lies about everything. Of course, (I'm smacking my forehead), he's lying about Canada! He's simply laying the groundwork to invade them and steal their social security. Tiny, you're brilliant!

[Michael]

Does Mr. Tiny have a job or a life outside of blog commenting?

Where does he find the time?

[syn]

A Tiny,

You DO need to examine yourself regarding Iraq. Iraqis themselves considered Saddam to be a WMD yet you fail to recognize this. Iraqis themselves are confused as to why western media is so against them and their pursuit for building a free and representive government by constantly reporting only the negative and the impossible. Iraqis themselves do not accept that they are incapable of establishing their own free society and do not accept your condescending voice. Iraqis suffered under the corrupt United Nations while people like you embrace the UN corruption as legitimate.

I am an American WHITE female who recently has personally met some Iraqis and yes, I am angry at people like you who constantly use an immoral argument against these people in order to feel smug in your vacuous intellect which, by the way, has managed to create an environment of promotting anger, hatred, disappointment, disgust towards anti-liberators such as yourself. You have created an offensive ugliness the free world is repulsed by. In additon you have created your own depressing environment of which I personally want nothing to do with.

You do not understand because you haven't the soul to understand. You are simply a racist bigot against everyone who is not you, a vacuous, selfish, self-indulgent, smug intellect living under the veil of a heartless, souless utopia created by immoral people.

You should be depressed, your misguided utopia is crashing down all around you and all you are left with is a huge pile of rotting garbage.

[Forbes]

Last I checked, SS is either a pyramid scheme or an inter-generational Ponzi scheme--take your pick, either way it would be illegal to offer such a scheme, much less make it mandatory to US private employees (state and municipal employees are not required to participate in SS, although some do). If it's accounting legerdemain you're looking for, tell me where the assets are (hint: there aren't any).

A old age retirement system based on income transfer cannot be fixed in any meaningful way because by definition it is broken, as it's not based on economics.

What's all this about a war in Iraq? Did I miss something ;)

[Jim Glass]

"When has the US Govt. EVER begun a program which took our money and returned it all ...let alone an interest on that money?"

How about Social Security, 1935-2000, which returned money returned with about $11 trillion of interest, rather more than market rates.

From 2000 on the return will be $11 trillion less than money contributed.

Do ya' suppose this is a meaningful change in the program that contributors to it who actually depend on it (unlike elite folk like Krugman who get $25 k a speech) might notice?

[Jim Glass]

"America seems to be a really angry place these days... at least among a certain type of white men."

Yeah, there are people so angry that in a discussion about social security they go into a totally off-topic rant about Iraq.

Are you a white man? Do you know what psychological projection is?

[TM]

From A Tiny:

So, whether we have private accounts or not, if it's a problem to have two workers supporting every retiree, then it's a problem. But it's a problem with the overall US economy, not Social Security. (There are two exceptions to this. First, changing the SS system could theoretically increase investment now, leading to a bigger pie to divide in the future. Second, people could invest overseas, so their retirement was being supported by workers elsewhere. But when you look at it closely, neither of these things would make a significant difference.)

I will accept the basic point, that eventually retirees will consume the output of others, not physical items they have themselves "saved".

However, I am somewhat surprised to be informed that "if I look at it closely", I will conclude that the ability of foregin workers to meet our demands will not "make a significant difference".

First, how might that be squared with the importance we already place today on imported goods? Is the US economy going t be less import-reliant in the future? Why?

Secondly, why must I invest overseas today if I want to be supported by foreign workers in the future? Suppose I put my entire nest egg into a golf course which I then sell to a Chinese developer in 2040 - can't I spend that to fund my retirement?

More broadly, as long as prospective retirees accumulate assets that will be valuable to (foreign or domestic) investors in their retirement, the retiree can use the proceeds to buy goods produced at home or abroad. Sort of like the global economy we have today.

I suppose that if the world as a whole ran out of workers with the suitable skills, we might have a problem. Or, there will be a problem if the objects of a retirees desire can not be imported (nurses, already in short supply, will all emigrate from the Third World).

Japan is an obvious example of a graying country that will run out of workers (whatever that means). Their huge savings will then be used to switch them over to becoming an importer, I would guess. The fact that a lot of their savings are foreign-denominated strikes me as incidental, and more related to obvious problems of portfolio diversification.

[TM]

Let me clarify a point that I am sure A Tiny meant to make clear. Krugman is ranting about the lies and deceit of the Bush Administration, as usual, and A Tiny told us this:

the SS debate involves quite conscious deceit on the part of reform (or "reform") proponents.

Here's one example:

The only reason we're talking about this is because the SS administration has started forecasting very low economic growth for the US for the next 75 years.

Following A Tiny's link takes us to a Dean Baker page discussing the Social Securiuty Admin forecasts from 1998.

Now, this forecast predates the Evil BushCo, which should have been obvious upon reflection, since A Tiny tells us that Baker has been plaguing people about this for five years.

Still, one wonders why the SSA under Clinton was promoting the notion of a crisis. My theory, based on "Save Social Security First", was to forestall any move on tax cuts.

However, I don't know who staffed the SSA - I am only guessing it was Clinton appointees,and this was certainly an era when Reps controlled Congress.

[Jim Glass]

~quote~

"two workers supporting every retiree" proves my point. That is, if there is a problem in the future, it will be with the US economy as a whole, not Social Security. Let me explain.

ANY pension consists of current workers supporting retirees. "Saving" for fifty years from now doesn't mean storing food in a bunker that you will take out in 2054 and eat. Saving means a claim on a portion of the food, etc. that will be created in 2054.

Thus, it doesn't matter whether a pension is coming from the government, private investments, etc. It's all workers in the present supporting retirees in the present.

So, whether we have private accounts or not, if it's a problem to have two workers supporting every retiree, then it's a problem. But it's a problem with the overall US economy, not Social Security.

~ end quote~

The problem sure *is* Social Security, and it sure *does* make a difference whether pensions are financed tax-and-transfer or with investments.

You've got the "two supporting one" thing all wrong. It's *not* two workers supporting one with food, goods and services. The whole world does that. Did you every buy anything from outside the US? My understanding is there are a couple billion people in Asia beginning to supply goods and services to the US in what could become a very big way.

And with investment-funded retirement savings, those Asians along with the rest of the whole world can provide the retirement income of US workers too.

Oh, but if you limit the source of the retirement income of US workers to merely payroll taxes on other US workers, then as their ratio drops to 1-2 you will have a problem. And that problem comes entirely from Social Security's current structure, nothing else.

Markets for buyers, sellers and investors today are world-wide -- only Social Security binds itself by the domestic US worker-retiree ratio.

"people could invest overseas ... But when you look at it closely, neither of these things would make a significant difference."

Ha, ha, funny little hand-wave. But they can *buy* from overseas too, right?

Look at your feet. I bet your shoes are from abroad. Look at the rest of your clothes ... How many parts in the computer you are using right now are from abroad?

The ratio of world-wide productive workers to US retirees how much larger than 2-1?

How much is the quanity of their production going to change relative to the retirement income of just US retirees over the next 40 years, in dollar terms?

Being that just China and India have 8x the US population, I really don't see much risk of a shortfall.

[Jim Glass]

"in the future will be significantly more productive than today, and thus able to support more retirees."

Alas, through Social Security, no -- as wages track productivity and benefits are indexed to wages, this provides no relief at all to SS the funding shortfall. Young workers will still have to have their SS benefits cut, no doubt, due to the decline in the worker retiree ratio.

But to owners of investment-funded retirement savings, yes, sure! This is why owners of 401(k)s and IRAs have no worries at all about all the workers of the world running out of good things to sell them in the future.

[Patrick R. Sullivan]

A Tiny should note that at Max Sawicky's blog, both Dean Baker and Max, under continued needling by Andrew Samwick, have had to admit that there is in fact a problem with SS's future. They simply have a different method for "fixing" it.

[Jim Glass]

This guy really cracks me up .. "build up a trust fund". I suppose that he believes in Al Gore's "lock-box" too.

The truth is that all the money that isn't spent by the Social Security Administration is spent, excuse me, borrowed and then spent by the federal government.
~~~~~~~~~

Would you believe that the value of the Social Security Trust Fund in NEGATIVE by, oh, a trillion dollars?

Kent Smetters, of the National Bureau of Economic Research and Wharton just did a paper that reached this rather surprising conclusion...

~~~
"We find that there is no empirical evidence supporting the claim that trust fund assets have reduced the level of debt held by the public. In fact, the evidence suggests just the opposite: trust fund assets have probably increased the level of debt held by the public....

... each dollar of Social Security surplus appears to have actually increased the debt held by the public in the past by $1.76."
~~~

The mechanism by which he finds this to have occurred is really interesting.

I normally don't plug my own wee blog in others' comments sections, but it's way too much to explain here, and I've put the links and stuff there:

http://www.scrivener.net/2004/12/is-social-security-trust-fund-worth.html

When Krugman reads this paper it'll really make his day.

[Patrick R. Sullivan]

"...as Dean Baker observes, if the economy is going to perform that poorly, who would expect the stock market to perform well?"

Well, no. GDP growth can't be as large because there will be comparatively fewer workers when the Boomers retire.

However, PRODUCTIVITY can still be high, which is what counts to investors in stocks. Then, as others have mentioned, there is the universe of foreign stocks and bonds to also invest in.

Alternately, we could allow massive immigration--which A Tiny's Dean Baker has just come out for:

http://maxspeak.org/mt/archives/000978.html

[metis314]

A Tiny you say:

"But workers in the future will be significantly more productive than today, and thus able to support more retirees."

Exactly. At least in terms of raw goods for consumption; however, the retirees still must pay for these items. In the current system the government takes wages away from the current worker to pay for the goods, thus the purchasing power (wages, if prices are constant) of the future workers will also need to increase (~40% over 20 years) in order to pay for 1 senior with 2 workers versus the 1:3.3 now. Assuming taxes and the senior's purchasing power are to be held constant, of course. So the decreasing number of workers is not necessarily going to cause consumption problems because of rising productivity, but if prices don’t fall or wages rise there will be a shortfall at current levels of taxes or inflation adjusted benefits.

If however, we saved the money over the course of our working years, then future workers only need to be concerned about producing enough goods, since we will have the means to pay for the goods out of our own (saved) wages. It is a separate question to then ask if the savings will grow faster than inflation.

I will admit that I did not know that they used such a low forecasted growth rate for the US in the calculations – I will have to look up the actual government report on the projections someday. That being said, there is a simple (if highly improbable) way that the stock market could rise to an average PE ratio of 400 (as your linked site mentions). Put simply – the PE ratio is a barometer on the “yield” of a stock. If you invert the PE ratio (an EP ratio then) you get the stocks “yield” (absent future growth, etc…) this is the reason a PE ratio of 20 (EP 5%) is generally considered reasonable – because the yield on a 30 year treasury is historically ~5% and so any PE ratio higher would mean more risk for less reward. Now if the world economy was in relative shambles, the US economy was still growing at 1.7%, and the US stopped running a deficit (hey – I did say it was improbable) then this could drive down treasury yields to levels where a PE ratio of 400 is reasonable given expectations of 1.7% growth in earnings.

[chester white]

A Tiny-

For a "professionsl," you sure seem to have a lot of time to yak nonsense on this comment board.

[chester white]

Duke of Deland:

Life expectancy of African-American man, who likely starts working before age 20: 64 years.

Age at which he can apply for full SS benefits: 65+ years.

This set of facts, if no other, demonstrates the fundamental immorality of SS.

[TM]

For the benefit of Mr. Glass and anyone else stopping by, we encourage shameless self-promotion (and have done it on many other blogs ourself). If you have a link to a good blog, leave a link, *especially* if it is your own blog.

As to the life exp[ectancy of black males, I am semi-agog. Is that life expectancy at birth (plausible), or life expectancy among those who have reached age 20 (shocking)?

[Jim Glass]

"If you have a link to a good blog ..."

Well, I mean, that's the question, is it not?

Some of us have a great deal to be modest about.

[Mark L]

I'm not commenting on the SS debate here, the legitimate topic of the post, both on something else, so i'll make this short.

To Bruce Hayden et al who believe that the Admnistration was merely "wrong" but not deceptive about Iraq, you are just simply blooming crazy. The reports of Kay, Duelfer, the Senate Intelligence Committee, Blix's book among others all make crystal clear that there was blatant manipulation of the intelligence to make the case for war. carneygi report provides an excellent summary. Let alone the fact that the final October estimate (NIE) did not accurately portray the total intelligence well as the Senate Comm found, (owing to the inclusion of cheney's pentagon BS intell group OSP) but still, even that flawed NIE did not make the case that Bush made. Tenet was crystal lear, that at no point did any intelligence ever say that there was a imminent threat. (Speech early this year)

I do not know if the claims A Tiny is making re: the economy or SS are accurate, but what he is saying about Iraq is generally spot on.

The only people who still believe the Admin did not decieve about Iraq are the clueless or the brainless.

take your pick.

Oh, and syn, your hateful, bizzare rhetoric is indicative of psychological instability. Don't call people racist and bigots just because they are better informed than you are.

[A Tiny]

TM,

The CDC gives life expectancy for black men, as of 2000, at 68.2 at birth and 69.9 at age twenty. Life expectancy was 64.47 at birth as of 1995.

[A Tiny]

Mark L,

Thanks for your support. The fact that my pre-war evaluation of Iraq was accurate doesn't mean I'm correct about Social Security. But if I were some of the people here and had been wrong about Iraq & WMD, I'd want to know why. I'd also be respectful of people who'd been correct, and would take their perspective on other things seriously.

Re syn, she's walked straight out of the pages of "Heart of Darkness," although she's surely not aware of it. Colonialism historically has involved professions of deep, altruistic concern toward the group being colonized. Yet somehow they always seem to end up dead. For instance, Andrew Jackson famously said about the Indian Removal Act that "the policy of the General Government toward the red man is not only liberal, but generous." Then: the Trail of Tears.

The next step for syn will be a call to "exterminate all the brutes," when the brutes show they're not being sufficient grateful for our generosity. This progression has already been achieved by Trent Lott:

"I ask Mississippians of all faiths to pray for all our coalition forces and the Iraqi people as they engage in an intense but noble battle against what is nothing but sheer evil."
-- Trent Lott, March 27, 2003

"We went in there to free those people."
-- Trent Lott, April 15, 2003

"If we have to, we just mow the whole place down, see what happens."
-- Trent Lott, October 28, 2003

[A Tiny]

TM,

Some responses to what you wrote:

However, I am somewhat surprised to be informed that "if I look at it closely", I will conclude that the ability of foregin workers to meet our demands will not "make a significant difference".

First, how might that be squared with the importance we already place today on imported goods? Is the US economy going t be less import-reliant in the future? Why?

Yes, the US economy is going to be less import-reliant in the future. In fact, it may be much less import-reliant in the near future. We're running a gigantic trade deficit, and eventually our accumulated foreign debt will force the dollar to fall further and us to reduce imports. This may happen gradually (not so bad), or very very suddenly (extremely bad for planet earth).

Secondly, why must I invest overseas today if I want to be supported by foreign workers in the future? Suppose I put my entire nest egg into a golf course which I then sell to a Chinese developer in 2040 - can't I spend that to fund my retirement?

You could personally do that. But the US retiree population in aggregate couldn't.

Or... maybe it's theoretically possible. If so, we'd probably end up a formal colony of China, which is not really the future privatization advocates are selling.

I suppose that if the world as a whole ran out of workers with the suitable skills, we might have a problem. Or, there will be a problem if the objects of a retirees desire can not be imported (nurses, already in short supply, will all emigrate from the Third World.

A premise of the SSA forecasts is there will be low population growth and low immigration. (Hence, a lower worker/retiree ratio.) If there's more immigration (or higher fertility, as that Economist article says) then there won't be a SS shortfall.

Japan is an obvious example of a graying country that will run out of workers (whatever that means). Their huge savings will then be used to switch them over to becoming an importer, I would guess. The fact that a lot of their savings are foreign-denominated strikes me as incidental

There's a big difference between Japan, the world's greatest creditor nation, and us, the world's greatest debtor nation. Also, that their savings are foreign-denominated isn't incidental at all. First, the country as a whole wouldn't be saving if they weren't foreign-denominated. Second, if they begin to cash in their dollar holdings, the dollar will fall precipitously. (See above.)

[A Tiny]

Jim Glass,

You wrote:

there are people so angry that in a discussion about social security they go into a totally off-topic rant about Iraq.

Again, I don't think it's off-topic at all. The reason I brought it up in the first place (see way, way above) was because of all the talk about how Bill Clinton also talked about the problems facing Social Security. Well, yes -- and he also lied about Iraq's WMD.

So, I hope you'll humor me a bit further and answer a few questions.

1. Did you believe Iraq had WMD?
2. If so, have you considered why you were wrong? Ie, was this an inexplicable one-time occurence, or may there be a deeper flaw in the way you get information and perceive the world?

[A Tiny]

Jim Glass,

Also, re Social Security, you write:

How much is the quanity of their production going to change relative to the retirement income of just US retirees over the next 40 years, in dollar terms?

Being that just China and India have 8x the US population, I really don't see much risk of a shortfall.

Can you recommend any careful study looking at this? I've never seen anything that indicates there's any way this makes a plausible difference with Social Security. But I'd be happy to check something out. I'd particularly like to see estimates about how we could start saving enough to do this, without obliterating the world economy.

More generally, your perspective is flawed. We've been able to consume more than we produce for a long time, due to our relative power in the world. As that power declines -- which it's DEFINITELY going to do in the future you project -- that will change dramatically.

But I guess I can imagine the kind of world you predict. It's one where we're a colony, formal or informal, of China. But as I say, that would be due to a problem with the US economy overall, not Social Security.

[A Tiny]

Patrick Sullivan,

You write:

GDP growth can't be as large because there will be comparatively fewer workers when the Boomers retire.

However, PRODUCTIVITY can still be high, which is what counts to investors in stocks.

Nope, sorry. The SSA predicts very low productivity growth.

Again, hopefully there will be higher productivity growth. But then, no SS problem.

[A Tiny]

Chester White,

When you're a writer and you're procrastinating about the work you really should be doing, you can find almost infinite amounts of time for this kind of thing.

Still, even I'm reaching my limit.

[A Tiny]

TM,

You're right re Clinton's political calculation in the late nineties re SS and tax cuts.

However, I'd say the prevention of (some) tax cuts was a legitimate thing to do. When the SS trust fund starts to be redeemed, we'd be in better shape with a lower debt/GDP ratio. The Bush fiscal policies have raised the ratio, and will make things more difficult.

Essentially what happened with the 83 SS fix was that lower income people accepted higher (payroll) tax rates in the present, with the promise this would be returned to them via higher income taxes (mostly paid by higher income people) in the future. The benefit to the country as a whole is that we currently have a lower debt/GDP ratio than we would if taxes hadn't been raised on working people in the eighties. Without this, the Reagan tax cuts for the wealthy would make the ratio much higher.

Of course, the hope by the Reagan administration in 83 (and Reagan himself, as David Stockman says) was that the 83 promise to working people could be broken in some way... ie, that payroll taxes could be raised but richer people would revolt over higher income tax rates in the future, thus dooming Social Security, a longtime right wing goal. It looks increasingly likely their hope will be fulfilled.

Anyway, Clinton's general approach to SS was a catastrophe. Indeed, as I say, it was a catastrophe in exactly the way his approach to Iraq was a catastrophe. Both were essentially dishonest, which laid the groundwork for the current administration's more massive dishonesty. But that was the calculation Clinton made so he could stay in power. Bad for most Americans, bad for the world, but good for him personally.

[Forbes]

A tiny, why do you bother? You have all the right answers, apparently. For example, "the SSA predicts very low productivity growth" (as the reason productivity cannot be high).

Now, can you recommend any careful studies demonstrating that the SSA has been infalible in all of their past predictions, in order that they may be relied upon in their ability to predict the future.

Perhaps your perspective is flawed.

Now let me get this straight--because "Bill Clinton also talked about the problems facing Social Security...Well, yes -- and he also lied about Iraq's WMD," therefore Bill Clinton was lying about the problems with Social Security?

So there's no problem with Social Security? After 18 of your posts, I'd say that conclusion is not proven. While I doubt you'll ever reach your posting limit, you do seem to be out of tools, because you're hammering away at everything that appears to you as a nail, but you haven't constructed an argument. All the best.

[A Tiny]

Forbes,

Again: the SSA could be wrong. But if productively is higher, then there's no problem with Social Security.

I've tried to explain this in detail, but apparently without effect. The point is, you can't have it both ways. You can't say there's a SS problem because the economy's going to suck, and that it can be solved with stock returns only possible in a non-sucky economy.

Also, I note the continuing complete absence of any specific objections to what I've said. There's just the anger.

So if I'm so wrong, how about you show it with some evidence? I'm happy to listen. I suggest you start with stock projections consistent with the SSA's overall economic projections.

[TM]

From Tiny:

Or... maybe it's theoretically possible. If so, we'd probably end up a formal colony of China, which is not really the future privatization advocates are selling.

First, there are too many balls juggling, and I mean that in several ways. On the specific question of whether trade deficits can/"should" be financed with direct private foreign investment (as distinguished to semi-coerced foreign central bank investment) I take your point that selling all of America to the Japanese and Chinese may not be a desirable national goal. OTOH, if America can be an attractive place for other types of investment or spending (charge exorbitant fees to educate the children of the East at our universities?), why not?

Setting that sside, the interplay of foreign trade and investment strikes me as quite separate from Social Security privatization. Put another way, I don't think privatization adbaocates are saying it will help our trade deficit, or that opponents are saying that it will hurt it.

Putting Social Seucurity on the path towards solvency by increasing our national savings would tie back to the trade deficit (arguably - it also might just increase our foreign investment), but privatization and solvency strike me as different issues. Not that I want to characterize, or attempt to defend, all the claims being made by both sides.

[A Tiny]

TM,

OTOH, if America can be an attractive place for other types of investment or spending (charge exorbitant fees to educate the children of the East at our universities?), why not?

Well, sure. But the idea that kind of thing would make a significant dent in the trade deficit is... unlikely. Lots of third world countries are attractive places for people to vacation. That doesn't mean we should want to emulate their economies.

But more importantly, that specific example (universities) is bizarre from a historical perspective. Rich countries have their own high quality universities. Certainly Asia does or will. And if things go as privatization advocates count on, it's much more likely we'll be sending our kids there.

Setting that sside, the interplay of foreign trade and investment strikes me as quite separate from Social Security privatization. Put another way, I don't think privatization adbaocates are saying it will help our trade deficit...

Actually, that's exactly what Jim Glass and Patrick Sullivan are saying above. You MUST assume it will help our capital account position, if you think we're going to fix Social Security with glowing returns from overseas investment.

[A Tiny]

And finally, another interesting fact for Reid, who spoke about the worker/retiree ratio above.

A more important ratio is worker/dependent. (Dependent meaning retirees plus children.) Yes, there will be more retirees in the future, but there will be fewer children.

For instance, five years ago (I don't know recent figures) the ratio 0.708. It's projected to rise to 0.796 in 2035. So... a greater burden, but not much greater.

For comparison's sake, the ratio was far higher in 1965 -- 0.947. I don't remember an economic cataclysm during that period caused by too few workers.

[A Tiny]

Sorry for any confusion -- the numbers above are of course dependent/worker, not the other way around.

[syn]

A Tiny
So where ARE the WMD's every member of the United Nations Security Council and leaders of France, Germany, Russia, Britain declared Saddam had over the past decade?

Please bring proof that Saddam rid his country of the weapons he was not suppose to have as declared by the United Nations Security Council. I realize that hundreds of tons of ordance Saddam maintained throughout Iraq does not qualify as WMD's, nor do the French Mirages found buried in the sand after the invasion qualify as WMD's, but I ask you to please provide evidence that the United Nations Security Council was LYING throughout the 1990's that Saddam had WMD's. Please provide evidence that leaders from France, Germany, Russia, Britian were LYING. Also, please provide the proof that former President Clinton was LYING in 1998 when Congress declared war against Saddam for having WMD's as declared by the United Nations Security Council.

Until then you continue to be "My Heart of Darkness"

By the way, your "lies" about SS are just as pathetic.

[Forbes]

A Tiny:

Lighten up a little and you've got a chance as a humor writer, because I can't stop laughing.

Let me get this straight. TM started the thread as a discussion of the SS problem, so you assert that Bill Clinton lied about WMDs in Iraq, therefore Clinton's assertions regarding problems with SS are similarily lies.

Now I must prove you to be wrong!! You haven't made a case. And now you only see anger. We're so sorry.

I think the larger point to be made is that you've suggested that there is nothing wrong with SS, or at best, that some of the arguments presented herein--regarding SS problems and solutions--are faulty.

You'll excuse me if I don't take your suggestion regarding where I should start my argument. (For example, SS generates no earned investment reurns, only a government promise to pay benefits based on an arbitrary formula, so a discussion of stock returns, foreign or domestic is irrelevent.)

The point I made, way up in this thread, was that SS is a Ponzi or pyramid scheme. In other words, SS is an income redistribution social welfare program (fraudlently) sold to the public as an old age pension investment system, and was uneconomic to begin with, so there's no fixing it, there's only a postponement of the day of reckoning--certainly an immoral path to follow.

It was introduced nearly 70 years ago as a method to raise taxes during the depression, with the political trade-off of an income welfare program for the elderly poor.

With the passage of 70 years, every significant factor that gave rise to the political need for such a program, and the assumptions that gave rise to the appearance of solvency, have dissappeared or crumbled.

Yet, in the very same manner, you're making critiques based on the same sort of faulty approach--namely forecasts; forecasts of productivity or forecasts of stock returns or forecasts of foreign investment position or forecasts of the US's future power position(?), etc.

A fully privatized retirement income system, such as Chile enacted in 1980, could serve as a model and a path to follow to solve the current US Social Security problem. (And it doesn't require a debate about forecast assumptions in which some seem to enjoy participating.)

I shouldn't have prolonged this discussion, as the definition of a troll is someone who hijacks a discussion thread. Oh well.

All the best.

[DonPedro]

Krugman would stand by every one of his statements quoted from earlier works. Medicare by itself faces a crisis, do chiefly to rising medical costs, and Social Security faces a small funding shortfall. When he talks about the "crisis" facing Medicare and Social Security together, he's talking almost entirely about Medicare.

[Mark L]

Please bring proof that Saddam rid his country of the weapons he was not suppose to have as declared by the United Nations Security Council. I realize that hundreds of tons of ordance Saddam maintained throughout Iraq does not qualify as WMD's, nor do the French Mirages found buried in the sand after the invasion qualify as WMD's, but I ask you to please provide evidence that the United Nations Security Council was LYING throughout the 1990's that Saddam had WMD's. Please provide evidence that leaders from France, Germany, Russia, Britian were LYING. Also, please provide the proof that former President Clinton was LYING in 1998 when Congress declared war against Saddam for having WMD's as declared by the United Nations Security Council.

Wow. Just… wow. If there is a greater example of mind-shattering ignorance, I don’t know what it is.

1. So what you’re saying is Duelfer, Kay, UNMOVIC, IAEA, and The Senate Intelligence Committee (whose report this website links in the sidebar ive just noticed, why don’t you read something like that for a change) were ALL wrong? They must be pretty big liars huh.

2. I don’t know if youre being sarcastic about “ordnance” etc, but yes, those are not ‘WMD’. They are conventional weapons – of a very dangerous kind obviously, but not WMD. Sadam was prohibited from having certain devastating weapons that came to be termed WMD. Iraq was not prohibited from owning conventional weapons or an army, like any sovereign nation.

3. What the crap are you talking about the UNSC? After the Gulf War, Sadam was banned by the UN from having WMD. The IAEA and UNMOVIC entered Iraq and began a stringent program to find, inventory, and destroy all WMD, and find, inventory, secure and monitor all “dual-purpose” weaponry (like the stuff at al Qa Qaa).

Over the years, together with the sanctions program, they succeeded brilliantly at their task, as we now know for sure from Duelfer et al. They did this at a cost of US 25 million a year. In comparison, a huge army of US experts turned loose in Iraq after Baghdad fell ended up essentially confirming that the job had been done. They cost us >150 million over 18 months.

Sadam was not forthright about the fact that the whole WMD stockpiles had been destroyed. As Duelfer pointed out the reason was likely geostrategic re: Iran. For some reason there are idiots in the US who have never understood that Sadam never considered us his main enemy. As a dictator he was brutal, but like all dictators had an instinct for self preservation. It would have been insane to attack the US in any way whatsoever –wed have blasted him to oblivion.

No, his main interest was in being the hegemon in his locality, and his arch foe was Iran. He had a geostrategic interest in not letting it be known that he had completely lost his WMD capability to the UN. As Duelfer pointed out, Sadam had a long belief that owning WMD was a deterent against invasion (he was not wrong). He learned this lesson in the War of the Cities in 1981, and again ten years later when Bush the First refused to march on Baghdad because of the WMD capability.

By 2002, the intelligence reports pre-October all point blank said he has no nukes, no program (there might have been some “low-level R&D”); so the intelligence on the nukes was NOT flawed. Yet, Bush and Condi LIED, suggesting we could be seeing a mushroom cloud (on American soil no less). That’s crazy. No state uses nukes like that, since its principle value is deterrence. Which is immaterial since the guy didn’t even have anything in the first place.

Re CWMD, there was some uncertainty. UNMOVIC had managed to track everything except possibly “6,000 CW munitions.” So this part of the Intel was flawed (he actually didn’t have squat). Yet, the Bushies took this and again misled. They said they were “certain that Iraq had vast chemical weapon stockpiles including mustard gas, sarin nerve gas, and VX”. This was bullcrap.

RE. BWMD, our intelligence was the weakest. This was the only area the intelligence was actually, badly flawed. The best intelligence suggested “Baghdad continued to
pursue a BW program” and Iraq had a “knowledge base and industrial infrastructure that could be used to produce quickly a large amount of BW agents at any time.”

This was of course untrue, since he had zipo, and his BW were of such poor quality they lost their effectiveness even before Gulf war I.

Now, there was no justification to invade Iraq based on this. If Bush gave the weapons inspectors a couple more months, they would hav documented the unparalled success of UNMOVIC program (if you think about it, that’s what it is – they completely disarmed a dictatorship of WMD under very difficult conditions). Which we now know of course, at a cost of 1300 American lives, ~98,000 Iraqi lives mostly women and children*, and US$150,000,000,000.

The price of Bush’s hubris and conservative fanatic stupidity in supporting (and post Nov 2 validating) him.

RE: Clinton and the UNSC post-1998. After Iraq kicked out UNMOVIC in 1998, there was uncertainty as to whether everything was truly destroyed. The bill passed in congress did NOT proclaim that he had WMD beyong all doubt, it committed the US toward “regime change” in Iraq, because of the cruelty of Sadam to his people. Of course, the real story behind this as we now know was the politcs of the wannabes ie. Chalabi et al, who took us for a nice ride.

Your astounding ignorance of history is matched only by your incredible bigotry in accusing people you don’t know of racism.

This is my second and last post since this is a waste of time.

(* To head off the repugnican bashing of the lancet study, please see the posts at crooked timber and the article in the Economist. What the cons did to the Lancet study was classic thuggery. They bashed it like a bunch of clowns when it first came out – Chicago boyz was the lead clown – and by the time a reasoned analysis confirms that the study actually was good and the results valid (within the epistemologic limits common to any human study), there’s a huge, stupid meme floating around that “the Lancet study was “flawed”. Makes me want to puke.)

[Jim Glass]

"A more important ratio is worker/dependent. (Dependent meaning retirees plus children.)"

Time to update your talking points. This one hasn't been used seriously by anyone since GAO documented and quantified the *obvious*, that the government spends 10x as much on each retireee as on each child. So a child for a retiree isn't such a good swap for the budget, eh?

GAO did that 10 years ago. Time to update that talking point list, really!
~~~~~~~~~

" 'I don't think privatization advocates are saying it will help our trade deficit...' "

"Actually, that's exactly what Jim Glass and Patrick Sullivan are saying above. You MUST assume it will help our capital account position..."

Jim Glass for one is saying no such thing, because it would be a very boneheaded thing to say -- more so even than invoking that "dependency ratio" thing as if infants collect pensions and medicare from the government.

The silly claim was made that in the future US retirees will be dependent for their welfare upon the physical production of US workers, at a 1-to-2 ratio.

I pointed out that US retirees have access to the physical production of all the world's workers -- where did your shoes come from, and the parts in your computer, and so on? -- and that that ratio is somewhat larger than 1-2, and is actually growing.

Now to save the silly claim someone seems to be saying that the trade deficit's inevitable end will lock US retirees out from being able to buy abroad, from access to the production of the world workers.(?) For the next *50 years* (??)

Bah, and nonsense. A trade deficit like today's was wiped out in the late 1980s. No recession, no nothing. What retiree couldn't buy from abroad as a result? Who even remembers??

All the trade accounts require is that imports and exports be balanced over the *long run*. A trade deficit can be eliminated with imports *still growing* if exports grow faster. And nothing at all stops trade as a % of GDP from growing as fast as it wants.

But lets take a worst case scenario: Crisis wipes out the trade deficit in one year, imports drop and exports increase by 3% of GDP each, balancing the trade account immediately, a recession lasts for a year or two.

Then for the next 40 years with balanced trade accounts real GDP grows 2.5% a year and trade relative to GDP grows 2% a year.

So, 40 years from now trade is *how much* greater than today?? US citizens won't have access to the products of the world's workers??? Ha, Ha. ;-)

Really, it's time to get new talking points.

[Jim Glass]

"Krugman would stand by every one of his statements quoted from earlier works."

Sure, he's notorious for never admitting mistakes.

He still hasn't corrected that column where he claimed: "the revenue lost to the Bush tax cuts was *more* than enough to fund Social Security and Medicare for 75 years".

And he was only off by about $40 trillion dollars current value there.

[rhodeymark]

Hey MarkL - having a tough time keeping that bile down? Go with it...savor it. We can use more women like syn who are able to see the world for what it is and do/support the heavy lifting necessary.

[Aaron]

A Tiny,

Why did the UNSC members including France think Saddam had weapons, when later reports now say that he probably did not?

Also, inspections had a price tag of US$ 25 million - but hidden costs of US forces in the region to maintain a threat...without a threat Saddam would not have complied.

Finally, can explain why inspectors missed the entire iraqi weaponized anthrax program until Kamel defected? Is this really the most reliable system in post 9/11 world?

[Billy Beck]

You people can sit around here and argue with straight-up assholes like "A Tiny", but I got over it twenty-eight years ago when I burned my socialist insecurity card and stopped paying taxes.

Not one fucking dime for people like him. Ever. My life is mine, and he cannot have any of it. No discussion. No compromise. No social security.

[A Tiny]

Jim Glass, politely enough, made my argument for me. As I said, Jim "MUST assume overseas investments will help our capital account position..."

Jim responds that he "is saying no such thing." He then goes ahead and tells this story:

Crisis wipes out the trade deficit in one year, imports drop and exports increase by 3% of GDP each, balancing the trade account immediately, a recession lasts for a year or two... for the next 40 years with balanced trade accounts real GDP grows 2.5% a year and trade relative to GDP grows 2% a year.

So, 40 years from now trade is *how much* greater than today?? US citizens won't have access to the products of the world's workers??? Ha, Ha. ;-)"

Yup. As I said, Jim MUST assume overseas investments will help our capital account position. That is, of course, precisely what he's doing here.

If nothing else, Jim certainly has good manners.

[A Tiny]

Also, Jim (you lovable knucklehead) --

Would you care to break out for me how much the additional costs of the elderly calculated by the GAO are MEDICAL COSTS?

I certainly would never claim Medicare doesn't face a very real crisis. But then THAT crisis stems from the more generalized crisis of US health care. You can't fix Medicare without fixing health care overall.

But that, of course, has nothing to do with Social Security.

[TM]

Huh? It is hardly good manners to tell a joke no one else gets (Or so I have been told. Of course, there is some question as to whether I am really telling "jokes". Anecdotes, maybe. I try to characterize them as "like a joke, except for the absence of a punchline...". But I digress).

If I am reading Mr. Glass correctly, he is simply identifying the theoretical possibility that our trade defict could be corrected next year, and that henceforth we could run a balanced current account. Pretty simple so far (however improbable).

In which case, he would be correct in saying that future retireees are not specifically relying on glowing returns from foreign investment, or relying on foreign investment to finance our trade deficit and provide the goods for their retirement.

Now, as an accounting identity, overseas investment helps our capital account. But I am claiming Mr. Glass for my side, and I am contining to say that the trade defict is a very distinct issue from Social Security privatization.

In fact, it feels weird just writing that - even the Department of Redundancy Department might consider such an observation to be beneath them. Possible new topic - will Social Security privatization help stabilize Iraq?

And how will if affect skiing in Vermont this winter?

[Jim Glass]

"I am claiming Mr. Glass for my side..."

After my Maguirelanche, for sure! Who do you want killed?

"and I am contining to say that the trade defict is a very distinct issue from Social Security privatization."

Very, very, very.

[andrew]

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