[Gunnair]

Quote:

Jonathan Kay:
A year and a half ago, George Mason University economics professor Russell Roberts collaborated with filmmaker John Papola to produce a YouTube video that might rank as the most improbable rap hit in the history of the genre: In Fear the Boom and Bust (and its even better sequel) two bookish-looking white men — playing the parts of John Maynard Keynes and Friedrich August Hayek — duel over the best way to rescue economies from recession. Keynes argues for more stimulus, Hayek for smaller government.

Fear the Boom and Bust presents viewers with a primer in macroeconomics through a hilarious theatre of the absurd. But in light of the current paralysis in the United States, there’s something true-to-life about the actors’ aggressive, rap-style sloganeering. This is more or less what policy-making has come down to in Washington: two tribes, each with its own prophets and dogmas, screaming taunts at the other side.

The noisiest tribe these days is the Tea Party, which embraces the cult-like mantra that cutting taxes can solve all of America’s problems. The thinking is captured nicely by Tim Pawlenty, a former GOP moderate who now claims that smaller government can usher in an economic nirvana of 5% growth rate for a decade. This is what anthropologists, in their analysis of primitive cultures, like to describe as “magical thinking.” Unfortunately, various right-wing pundits (including some true believers here in Canada) have been only too eager to don their alchemist hats.

The less noisy, but equally magically-inclined, tribe is the Democratic left, which imagines that America’s red ink can be sopped up without touching major entitlement programs such as Medicare, Medicaid or social security. According to Boston University economic professor Laurence Kotlikoff, formerly of Ronald Reagan’s Council of Economic Advisers, the net present value of America’s spending obligations, in excess of expected tax revenues, is $211-trillion — 15 times the already-staggering $14-trillion sum that represents the country’s nominal federal debt load.

“We’ve got 78 million baby boomers who are poised to collect, in about 15 to 20 years, about $40,000 per person,” Kotlikoff told NPR. “Multiply 78 million by $40,000 — you’re talking about more than $3 trillion a year just to give to a portion of the population.”

It is insane to think that these numbers can be addressed without reducing entitlements or raising tax rates. Yet those are the two inviolate red lines that Washington’s two tribes have, respectively, embraced.

By Kotlikoff’s calculations, the long-run solution is either to raise taxes by two-thirds or cut spending across the board by 40%. Even if you split the difference down the middle, raising taxes by a third while cutting spending by 20%, can anyone imagine more than a handful of U.S. legislators voting for such a plan? While most ordinary Americans accept the need for reality-based fiscal policies, the same isn’t true of the agitated partisans who decide primary contests.

The amazing thing about Kotlikoff’s prescription for the United States is that it corresponds more or less with what Canadian politicians did accomplish in the 1990s. As various Canadian commentators have been pointing out this week, Paul Martin and Jean Chrétien slashed spending by 20%, and increased tax revenues — largely through the GST, which they’d formerly opposed.

For years, Canadian commentators on all sides have attacked the Liberals for their mushiness — their willingness to swing from one end of the ideological spectrum to the other in a bid to curry favour with Canadians. And now the same accusation is being leveled at the Conservatives, whose fiscal policies have deviated little from those of their Liberal predecessors. This isn’t unusual, though: With rare exceptions (Bob Rae’s Ontario NDP, for instance, and the countervailing policies of his successor Mike Harris) Canadian politics tend to regress to the pragmatic mean. In the 1990s, this lack of ideology is exactly what saved Canada: Had the Liberals stayed true to their Trudeavian “principles” of big government, we would have become a North American Greece long before Stephen Harper had a chance to save us.

In the Liberal heyday, the Grits liked to trumpet their self-conception as Canada’s “Natural Governing Party.” That, too, drove right-wing critics nuts. But the flip side to this arrogance is a sense of responsibility for the country’s future. If party grandees think they “own” Canada, they’re going to do what’s necessary to keep it from sliding off a cliff — dogmas be damned.

National Post
jkay@nationalpost.com

[Psudo]

Quote:

“We’ve got 78 million baby boomers who are poised to collect, in about 15 to 20 years, about $40,000 per person,” Kotlikoff told NPR. “Multiply 78 million by $40,000 — you’re talking about more than $3 trillion a year just to give to a portion of the population.”

The full impact of that can be spread out and delayed by raising the Social Security/Medicare retirement age one month per quarter until it reaches life expectancy. They'd be retiring only a little later than they expected, but it would stretch the impact to the federal budget over more time. It's kinda like a seat belt in an auto accident.

Once again, I want to tout my 2:1:1 plan. Cuts in Social Security, Medicare, Medicaid to match the combined size of cuts to Defense and increases in tax revenue. $1 trillion per year in cuts that fit that format would give us roughly $500 billion/year surpluses from 2015 (or whenever the cuts take effect, whichever is later) until the baby boomers start to retire.

The one flattens out that $3 trillion/year peak cost of boomer retirements, and the other gives us some room in the national debt and annual to be able to handle it better. It's not enough to fix the entire problem, but it's a step in the right direction and something we can do sooner rather than later.

[Proculation]

Well, social-democracy is like a Ponzi scheme. The baby boomers who created all THEIR all-life programs did not care about the future. They thought that their children would pay for their excess while seeing a never ending wealth creation.

We are just seeing the inevitable. And it's just the beginning.

[Psudo]

Three things went wrong with an otherwise reasonable Social Security plan: 1) rising life expectancy but a stationary retirement age, 2) reduced birthrates, and 3) politicians sucking money out of Social Security savings to pay for other things. If it hadn't been for those three factors, 76 years of savings would get us through the boomer retirements no problem.

Supplemental Security Income probably hurt, too, but I don't think it's as big an issue.

[andyt]

Psudo wrote:

Three things went wrong with an otherwise reasonable Social Security plan: 1) rising life expectancy but a stationary retirement age, 2) reduced birthrates, and 3) politicians sucking money out of Social Security savings to pay for other things. If it hadn't been for those three factors, 76 years of savings would get us through the boomer retirements no problem.

Supplemental Security Income probably hurt, too, but I don't think it's as big an issue.

The one problem with your plan is that while we live longer, many people do so in diminished health where they just can't work anymore, at least not and be productive. Especially of course in physically demanding jobs, but dementia can prevent you from working any job. So something would need to be done about that. Also, of course no sucking money out allowed, and if more is needed, raise the contribution rate.

[martin14]

Psudo wrote:

Quote:

“We’ve got 78 million baby boomers who are poised to collect, in about 15 to 20 years, about $40,000 per person,” Kotlikoff told NPR. “Multiply 78 million by $40,000 — you’re talking about more than $3 trillion a year just to give to a portion of the population.”

The full impact of that can be spread out and delayed by raising the Social Security/Medicare retirement age one month per quarter until it reaches life expectancy. They'd be retiring only a little later than they expected, but it would stretch the impact to the federal budget over more time. It's kinda like a seat belt in an auto accident.

They are starting to do this in Europe, and my guess is you have no idea how
unpopular that idea is.

As a side note, it also slows down or stops the ascension of younger people,
as the older keep working when they should have retired.
Not good social policy.


And older people vote.

[stratos]

andyt wrote:

Psudo wrote:

Three things went wrong with an otherwise reasonable Social Security plan: 1) rising life expectancy but a stationary retirement age, 2) reduced birthrates, and 3) politicians sucking money out of Social Security savings to pay for other things. If it hadn't been for those three factors, 76 years of savings would get us through the boomer retirements no problem.

Supplemental Security Income probably hurt, too, but I don't think it's as big an issue.

The one problem with your plan is that while we live longer, many people do so in diminished health where they just can't work anymore, at least not and be productive. Especially of course in physically demanding jobs, but dementia can prevent you from working any job. So something would need to be done about that. Also, of course no sucking money out allowed, and if more is needed, raise the contribution rate.

I know this sounds so freaking stupid but I never have gotten why can't the US Gov. not spend more then what it takes in. If we need to cut down on things my first thought is aid to other countries. Sounds cold hearted but why take care of others before the Gov. takes care of it's own. Secondly this is something I heard on the radio a couple months ago. If the US would pull troops out of countries we no longer need to be in such as most of western Europe and house the troops here in the US we would save a ton of money. No need to reduce the troop level just where they are stationed at. The cost of keeping troops in foreign countries vs the US is supposed to be huge.

[Psudo]

andyt wrote:

The one problem with your plan is that while we live longer, many people do so in diminished health where they just can't work anymore, at least not and be productive.

Some can do the work, some can save and retire on their own dime for a while before Social Security kicks in, and some would qualify for disability benefits (say, if they have dementia).

It's also true that some can save better on their own than Social Security can do for them, but they can't use their Social security money their own way. The principle of one-size-fits-all isn't reasonable in the face of human diversity, but it was an established principle in Social Security long before I said anything. The minority who would suffer unduly by a raised retirement age don't deserve an exception that was denied those who would have been better off without Social Security. Every government program sucks for some small group -- that's why conservatives fight for fewer of them.

65-year-olds are in any better health today than in 1935 when Social Security was established. Even if we don't raise the age to life expectancy, it should be raised by some amount.

andyt wrote:

no sucking money out allowed, and if more is needed, raise the contribution rate.

Some people joining the program during the past decade or so are already on track to put hundreds of thousands more dollars into the system than they'll ever get out of it. You're choosing to make the program (more of) a Ponzi scheme rather than restore it's sustainability.

martin14 wrote:

They are starting to do this in Europe, and my guess is you have no idea how
unpopular that idea is.

You know what else is unpopular? Social Security failing entirely. Fine, it's a third rail -- political suicide. It's also the right thing to do if the program is going to survive at all.

martin14 wrote:

it also slows down or stops the ascension of younger people, as the older keep working when they should have retired.

This is a tax increase/expired tax cuts issue. It puts the ascension of younger people (and the unemployment rate) back to how it worked before there was Social Security. People have gotten used to faster ascension, just as people have gotten used to lower taxes. But which status is really the status quo?

And even if I'm totally wrong, how else do you plan to handle $3 trillion per year in new spending?

[andyt]

stratos wrote:

I know this sounds so freaking stupid but I never have gotten why can't the US Gov. not spend more then what it takes in. If we need to cut down on things my first thought is aid to other countries. Sounds cold hearted but why take care of others before the Gov. takes care of it's own. Secondly this is something I heard on the radio a couple months ago. If the US would pull troops out of countries we no longer need to be in such as most of western Europe and house the troops here in the US we would save a ton of money. No need to reduce the troop level just where they are stationed at. The cost of keeping troops in foreign countries vs the US is supposed to be huge.

Discretionary spending is a drop in the bucket compared to military, medicare/medicaid and social secrurity. US foreign aid is .019% of GDP - around 50 billion dollars.

The US should get out of the global cop buisness, which should including standing down a good chunk of the forces, not just closing bases.

But you've got to get to the point of taking in more revenue than you put out. If you try to do that all by spending cuts, you're going to lay waste to the society you've built up - will probably make London look like a picnic. Then you'll have to build up the military again - to control your own population, and bada bing, you're Syria.

[DanSC]

Psudo wrote:

martin14 wrote:

They are starting to do this in Europe, and my guess is you have no idea how
unpopular that idea is.

You know what else is unpopular? Social Security failing entirely. Fine, it's a third rail -- political suicide. It's also the right thing to do if the program is going to survive at all.

I think it's too late. Social Security will be sucked dry before I can make a claim. I'm not even factoring Social Security into my retirement planning.

[andyt]

Psudo wrote:

andyt wrote:

no sucking money out allowed, and if more is needed, raise the contribution rate.

Some people joining the program during the past decade or so are already on track to put hundreds of thousands more dollars into the system than they'll ever get out of it. You're choosing to make the program (more of) a Ponzi scheme rather than restore it's sustainability.

Paul Martin increased CPP contributions and our system is in very good shape. (I think he also resisted looting the surplus). It's not a Ponzi scheme at all. You say yourself, people collect more because they live more. Our system is self-funded.

And CPP is a very good, safe investment. Sure people can make more on the stock market - til we have a crash like in '08 or what's happening now. Then there is whining and gnashing of teeth and wanting the govt to do something. CPP only covers the first 40,000 or so of income. People below that line are better off just investing in CPP - at least something will be there for them when they retire. People above that line are free to use their non-CPP eligible earnings and invest them however they want.

CPP is a very good idea. It's a social stabilizer. I could see raising the age limits a bit, and in Canada we talk about doubling the contributions and the payouts. Other than that, it's doing well.

[DanSC]

It doesn't help that Obama's ingenious idea to help stimulate the economy was to cut the payroll tax. The payroll tax that funds the Social Security trust fund. This will only cause the fund to run out sooner.

[Psudo]

andyt wrote:

It's not a Ponzi scheme at all. You say yourself, people collect more because they live more.

That's not the point. It's a Ponzi scheme because the new generation generally has to lose money in order to fund the current generation. Raising the contribution rate makes that effect worse. Sure, some get ripped off less and others more because of how long they live. Once it gets to the point where the new generation is ripped off to pay for the old generation, why sustain that status quo? It's better to modify it so it helps fewer people rather than let it hurt more.

[martin14]

DanSC wrote:

Psudo wrote:

martin14 wrote:

They are starting to do this in Europe, and my guess is you have no idea how
unpopular that idea is.

You know what else is unpopular? Social Security failing entirely. Fine, it's a third rail -- political suicide. It's also the right thing to do if the program is going to survive at all.

I think it's too late. Social Security will be sucked dry before I can make a claim. I'm not even factoring Social Security into my retirement planning.

Nor am I.

[Psudo]

martin14 wrote:

DanSC wrote:

I think it's too late. Social Security will be sucked dry before I can make a claim. I'm not even factoring Social Security into my retirement planning.

Nor am I.

Me either. That was the point I'm presenting to andyt. The program has lost the new generation's confidence. If it's going to matter again, it's got to be reformed.