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True, Supreme Court rulings have set Congress free to de-link the contributions from the benefits any time they want. But FDR's intent was to make that politically impossible, and so far it has succeeded for 76 years. (See the last two paragraphs on this page: .) Could be time, however, to throw that idea under the bus and, in effect, admit that the survival of SS depends on admitting that it's a welfare system.
That's correct. I forgot to mention that "some Democrats" actually do understand what drives real economic growth -- even though the rest of them continue to worship at the altar of intelligent design economics.
I presume you meant "some" Republicans, not "the" Republicans. By the same token, some Democrats have supported big reductions in defense budgets and capabilities going at least that far back -- but some have not. Those are examples of why many people are calling themselves independents these days.
A deflationary spiral is one of the fears of every central bank, because they have few tools to fight it. It can lead to double-digit unemployment, which leads to rioting in the streets, which leads to the overthrow of governments. Avoiding it is arguably a higher priority than avoiding unanticipated inflation (against which the central bank has tools to fight). Deflation is the other form of currency instability, but because it is so historically infrequent compared with inflation, we hear little to nothing about it. Nonetheless, the central bank's job is to avoid both deflation and unanticipated inflation -- even though we hear little else from the fear-mongers besides the inflation mantra.
Toggle Commented Oct 5, 2011 on Bernanke’s response at The Skeptical Optimist
FTE's increased in all quintiles (2007 vs 2000), so it was due to an increase in salaries and wages that exceeded the increase in FTE's.
Income per FTE is shorthand for income per 2080 hours worked. It controls for increases or decreases in hours worked per household, regardless of the reason the hours worked may have changed (eg, retirements, layoffs, extra workforce entrants, switches from part time to full time, etc). In short, it isolates the money income return to a range of households for a given amount of work output from that same range of households. For example, if a two-FTE-earner married couple gets a divorce, (a) income per household would drop dramatically, but (b) income per FTE would remain the same. Conversely, if a single-earner household changed to two earners, income per household would increase while income per FTE would remain the same.
Anthony, Thanks for your comments. I agree that capital gains is important, but I had to limit the analysis to the income categories collected in the CPS, because that's what the middle-class "flatline" claim was based on. Income per FTE is closely correlated with wages, and has the advantage of removing the effects of changes in workers per household, and changes in hours worked per year per worker. (BTW, according to one paper by a U.S. Treasury employee, there are seventeen possible definitions of "income" available from the various statistics collected in the survey.) If capital gains were included in the analysis, it would of course illustrate that most capital gains accrue to the top third -- but it's anybody's guess whether or how it changed, 2007 vs 2000. In any case, it's not captured in the CPS data. Bottom line: the CPS data was the source for the claim -- an administration official confirmed that to me in an email. The same CPS data was used to analyze whether the median was in fact an accurate proxy for several plausible definitions of "middle class"; the result was negative.
Mike, Good points; but paper redeemable for gold (a) is not what Ayn Rand described, possibly because (b) it's the beginning of the process that leads to fractional reserve banking. Those entrusted with gold deposits soon realize that, nearly 100% of the time, 10% of the gold is sufficient to satisfy depositors who want to redeem their paper for their gold. That's when they start creating "bank" money (from thin air) by lending out more paper than the gold they have in the vault. The phrase "money from thin air" is a pejorative; but it means precisely the same thing as "money based on 2-way trust." Whether it is fractional reserve banking backed by gold, or by base money "printed" by the Fed, it is TRUST that underlies the entire system, NOT a shiny metal that has been hard to mine, seashells that have been hard to dive for, beaver pelts that have been hard to collect, or Marlboros that have been hard to counterfeit. And if the gold bugs' true, underlying complaint is against fractional reserve banking... well, that's a different argument, and one that they'll have an even tougher time winning.
Toggle Commented Sep 22, 2011 on Bernanke’s response at The Skeptical Optimist
Thanks for visiting, Dave.
No, capital gains are not included in the defintion of total money income, nor are survey respondents asked about it (in the CPS). I stuck with the same definition of income used for the "flatline" claim, for obvious reasons: total money income; then I controlled for potential variations in hours worked per household. There is some info on capital gains by income group (for a single year) at the following link, but there's no indication of how much it changed over time for any of the groups -- let alone for the comparison of 2007 vs 2000. Here's the link:
Interest rates going up might not be bad news, because many think they are a result of an improving economy. In other words, an improving economy means more people working and paying taxes, which would offset the effect of higher interest rates.
I guess it depends on whether ss is viewed as an investment or a safety net.
Jerry, Good points -- but the same problem with guarantees exists today with Treasury securities. They are viewed as the safest financial asset on the planet because everyone trusts the U.S. govt and its track record of never (except very recently) even coming close to defaulting, not because of any ability to sue the feds for defaulting. The current debate is one of tweaking the status quo versus govt-mandated private saving (including stock market investing if the individual so desires). If that remains the choice, it's safe to rule out the latter and stop wasting valuable debate time on it. (Frankly, I'd rather hear the Republicans debate the best ways to spur long-run growth than waste time proposing a DOA social security "alternative.")
Thanks, I see what you are saying. But if the new SS bonds came with zero interest (except whatever it took to index for inflation), there wouldn't be a penalty or subsidy for 1 vs 2.
Help please: Who is the "you" in "you can only match..."? Sounds as if you're describing a private entity, such as a corporation, small business, or sole proprietorship. Correct me if that's wrong.
Thanks for being concise. SS contributions are based on the first $x of earnings, above which a social safety net was decided should not apply. Benefits are structured accordingly, although the math might not work out to the nth decimal. In any case, nontransferable bonds could be structured to at least minimize the benefit difference, if not eliminate it. Private ownership of the asset is the point, because it replaces private dependence on the integrity of the political class.
It hasn't happened frequently; 3.5-4.0% has been there several times. I think the last time I saw 4.5% was in the out-year assumptions in Obama's 2010 budget proposal.
Social security is not going away. Let's call it what it is: a system whereby the government transfers money from some citizens to other citizens. Viewed that way, it's similar to just about everything the government spends. Calling it a Ponzi scheme is, in my judgment, not just inaccurate, it is a major political blunder that will push a decisive block of votes towards the candidate who does NOT call it a fraudulent scheme. Seems to me the Republicans should want to win the 2012 election; if that's the case, they should strongly prefer to nominate someone who will NOT become the Democrats' dream opponent by calling SS a "Ponzi scheme."
Gil, Hyperinflation is highly improbable under the current system. But guarantees against both hyperinflation and deflationary collapse under any monetary system (either of which would cause an overthrow of the government) are impossible, because stability depends on effective management by whomever is in charge of that system. My position is twofold: (1) I trust our Fed Board of Governors to fight inflation that exceeds 2.5-3% by tightening (i.e., unprinting fiat dollars), in the event that the now-idle billions of fiat dollars just sitting there in banks' excess reserves gradually start "chasing" goods and services at a too-rapid pace. That means the word "hyperinflation" is off the table; it's just a scare-word. It also means that excess inflation, if and when it shows up, will be countered by the Fed. (2) Conversely, in the alternative gold-standard scenario, I have zero trust in the gold miners of South Africa and Russia to cram already-mined gold back into the ground to prevent excess inflation in the USA, in the event of a surprise gold-supply glut resulting from a new discovery or a breakthrough in mining or processing technology. (Imagine what would happen to the price of goods -- in gold coins -- shortly after a new, inexpensive method to extract gold from seawater was posted on the internet. As in Weimar Germany, it would take wheelbarrows full of "money" just to buy a loaf of bread, but this time the "money" would be gold.) Please understand: I do NOT trust the Fed to perform flawlessly. Although they have improved dramatically versus their performance early on, they still lack perfect information and can be expected to get (at least) the timing wrong, if not the policy direction as well. I merely trust the imperfect Fed to do a BETTER job of preventing both dollar-inflation and dollar-deflation than would: (a) politicians; or (b) South African or Russian gold miners. Why do I trust the Fed more than the gold bugs? Because of the evidence. I've been hearing the dire warnings about hyperinflation for at least forty years, including the most recent two years since the Fed has been "printing" all of that fiat money; money which, according to gold-peddlers like Glenn Beck, was supposed to trigger the Weimar scenario. As usual, "Weimar USA" didn't happen -- yet; also as usual, it's supposedly "just around the corner." The gold bugs seem to be ignoring the equation of exchange, MV=PT, which tells us that there is no price inflation (P) when an increased money supply (M) is offset by falling money velocity (V), which is what happens to money velocity when newly-printed money just sits there in excess reserves. Further, the equation also tells us that DEFLATION can be the dangerous condition EVEN IF the money supply increases. [In the real world, it is IMPOSSIBLE to measure the "money supply," as the Fed has learned since Volcker's chairmanship; that's why the Fed now targets the interest rate instead of the "money supply." But the equation of exchange is an instructive exercise in thought in any case.] In short, the evidence tells me that the Fed is on the right track, and that the hyperinflation peddlers haven't looked closely enough at either the evidence or the equation of exchange.
Tom, The Fed debate is mostly about preventing bubbles from inflating in the first place (with something other than rhetoric). And, although it was absolutely necessary to prop up the banking system to prevent an economic collapse, it's a travesty that nobody went to jail. Privatized profits with socialized collapses do not make for a free market.
Toggle Commented Aug 23, 2011 on Money-printing for dummies at The Skeptical Optimist
Jerry, The Fed has enormous power, that's true. But whichever entity controls the U.S. Dollar supply to the world will yield enourmous power, and that is true of whatever the supposed alternative to the Fed happens to be (...although there really isn't a viable one). The anti-Fed advocates of the gold standard alternative have never explained why we should transfer that power to foreign gold mine owners, mostly governments, who (by the way) would never dream of putting the gold back into the ground ("unmining" it) in the event of a sudden oversupply due to a new discovery or technological breakthrough. Nor would they suddenly increase the supply to avoid stifling real growth potential that exceeded the annual increase in gold due to mining. The best we can do, based on what I know, is to improve the Fed's results, perhaps by shifting to the Taylor rule or the Mankiw rule to make the Fed's moves more predictable and closer to automatic. The important point is that both inflation and deflation need to be prevented by whatever system we choose. If there's a viable non-Fed alternative, I'd like to take a look at it. (I've been looking for years and haven't found one yet.)
Toggle Commented Aug 23, 2011 on Money-printing for dummies at The Skeptical Optimist
My own take is that monetary policy has run out of bullets; the only thing left for government to do is in fiscal policy, but the leadership void in DC will ensure continued stalemate on that front -- which might be a relative bright spot compared with the anti-growth possibilities of tax-rate increases or big cuts in defense and infrastructure "spending" (i.e., investing). In short, it's difficult to maintain optimism in the current political climate.
Toggle Commented Aug 22, 2011 on Money-printing for dummies at The Skeptical Optimist
Tom, Fiscal policy (subsidiies of the "ownership" society) pumped up the housing bubble far more than monetary policy. The mortgage interest deduction, for example, pumped up the bubble for decades. Whether monetary policy should be employed not only for consumer prices but also for asset bubbles is an ongoing debate. To date, the Fed has resisted adding asset bubble control to its objectives.
Toggle Commented Aug 22, 2011 on Money-printing for dummies at The Skeptical Optimist
Jason, Well *of course* the Fed has the power to create money out of "thin air"; that is the definition of fiat money. The Fed also has the power to make money vanish back into "thin air" -- which is the point of my article. For some reason, Ron Paul (and you?) can only see the danger of inflation, never the danger of deflation; that stance ignores half of the problem. I'd rather the Fed keep the power to create money out of thin air, than relinquish that power to the Russian and South African gold mine owners. Sounds like you'd rather turn that power over to the foreigners -- in which case you and I will simply have to agree to disagree about who should control the USA's monetary policy. Sounds like you've read one too many Fed-conspiracy-theory books.
Toggle Commented Aug 21, 2011 on Money-printing for dummies at The Skeptical Optimist