Glenn Hubbard Makes Good Suggestions That Of Course Will Never Be Used in America

[ERD50]

I think the starting assumption is maybe incorrect: that SS was the product of some kind of deliberate, rational design process. It's so muddled and has been modified so many times that there's no hope of discerning any "design" to it. As you've identified, even in its original incarnation it was conflicted.
With most govt programs, there's little utility in trying to figure out the original intent, it's best just to skip ahead and see the impact and deal with it.

Agreed. But since we are dealing with hypothetical "what would you do?" questions, that is what I would do - demand that 'solutions' are actually "designed". And de-construct those w/o a good and transparent design.

I guess I should link to a youtube of John Lennons' "Imagine...."


-ERD50

 

[ERD50]

My point was that the oft heard argument (and one made by you and eluded to by Bikerdude) that "benefits shouldn't be cut because I paid into the system" is bogus because everyone has paid, or is paying, into the system.

I don't see the need to spare current benefit recipients of means from the chopping block.

Actually, I said I don't 'favor it' - it's too much of an 'easy way out'. I didn't say it "shouldn't be done" if it is truly the best and needed solution. And whether anyone else has or has not paid into the system is irrelevant - their case should be looked at on its own merits.

I have said it isn't hypocritical to accept a payout for a system you don't approve of, since you didn't have the option to not pay into it. That is different.

If benefits for those who have paid into a system 'have' to be cut, then it 'has' to be done (in a rational world, but we are talking politics now). I'm saying that we ought to plug the leak (re-evaluate future collections/payments), while we deal with the flood (current obligations). To me, that means trashing the current SS system of collections (starting in 2011, and affecting pay-outs based on that date), and replacing it with something rational.

-ERD50

 

[Texas Proud]

...snip...

Is SS to provide a 'safety-net' for Grandma?

...snip...
-ERD50

I will say your argument has a flaw since IMO your first stmt is flawed...

SS was designed as a part of a retirement system that was one leg of a stool... the others being a pension from your company and the third your own savings...

If you look at it like that, then the people who pay in more should get more... it is not 'needs' based.... and even rich people get some... the 'safety-net' aspect was some politician trying to get more benes for Grandma....

Most private sector workers have had one of these legs cut off... SS is going to be shortened.... so the savings part has to compensate for both of these reductions...

 

[ERD50]

I will say your argument has a flaw since IMO your first stmt is flawed...

SS was designed as a part of a retirement system that was one leg of a stool... the others being a pension from your company and the third your own savings...

If you look at it like that, then the people who pay in more should get more... it is not 'needs' based.... and even rich people get some... the 'safety-net' aspect was some politician trying to get more benes for Grandma....

Most private sector workers have had one of these legs cut off... SS is going to be shortened.... so the savings part has to compensate for both of these reductions...

A reasonable view of it. What concerns me is if that is the angle, the average Joe/Joan are not and have not been hammered over the head with that message. We've seen a few posts here by 'Young Dreamers' that 'get it', but they seem to be in the minority.

Most of the private sector pension cuts have been "going forward" changes (BK being the exception, but the guaranty fund steps in then). So people have time to adapt by beefing up the savings leg of the stool (and yes, that is not easy). If you were 64 and retiring at 65, and your company changed (or dropped) its pension plan, you were not affected much if at all.

I guess it appears to me that the 'safety-net' aspect is what gets the attention.

-ERD50

 

[Bikerdude]

My point was that the oft heard argument (and one made by you and eluded to by Bikerdude) that "benefits shouldn't be cut because I paid into the system" is bogus because everyone has paid, or is paying, into the system.

I don't see the need to spare current benefit recipients of means from the chopping block.

Well I think there is a difference between giving someone 20+ years to plan for a cut than to cut someone who has already started benefits. I would have no problem in subsidizing my retirement had I been given fair warning.

Hey I've already taken a permanent 5% cut just because I started SS at 62 and was born in 1947. I would however agree to an amendment that all SS beneficiaries share in that 5 % cut.

 

[Independent]

From that chart, we in turn paid more than our predecessors. Not sure what your point is other than government keeps steadily increasing the % of money that they collect from us. They seem to think they can use that money more intelligently than we can ourselves.


Admittedly, it is tough to 'take back' promises made and paid for. Just look at the charged level of the public pension threads. It's not something many politicians are eager to take on.

For me, a start at least would be to start winding down the future promises and the future collections. Every policy should require a one-page, understandable to the common man, 'mission statement' of just what it is designed to achieve. I've asked a few times on this forum, and no one has been able to explain just what SS is supposed to do. If you think about it, it's a contrary mess of counter-intuitiveness:

Is SS to provide a 'safety-net' for Grandma?

OK, but why promise payments to people who don't need it? And why collect and pay-out based on a % of salary? The more you make the less help you should need, but the whole system is backwards - the more you made the more you get. The collection system is a combo of 'flat-rate' and 'regressive', the pay-out is steeply 'progressive'. It's a complex mish-mash. Add to that other social programs for the elderly, and who knows what really goes where?

If I were king, I'd completely un-wind SS going forward and privatize it (to encourage saving/education to help keep people off the dole in old age), with a possible government sponsored annuity system to safely spread 'longevity risk'. I'd replace it with a safety net system to provide for those who need it. Why mix the two - it just obfuscates the whole thing?

That's a start.

-ERD50

To me, SS was intended as a safety net, the complications were viewed as necessary to get and keep public support for the program.

Some members of congress actively promoted a simple plan of $50 per month for everyone over 65, funded by a national sales tax. (I've forgotten the name of such a system, it's on the SS History page).

I have no problem with the safety net, the rest is awfully inefficient.

 

[Texas Proud]

A reasonable view of it. What concerns me is if that is the angle, the average Joe/Joan are not and have not been hammered over the head with that message. We've seen a few posts here by 'Young Dreamers' that 'get it', but they seem to be in the minority.

Most of the private sector pension cuts have been "going forward" changes (BK being the exception, but the guaranty fund steps in then). So people have time to adapt by beefing up the savings leg of the stool (and yes, that is not easy). If you were 64 and retiring at 65, and your company changed (or dropped) its pension plan, you were not affected much if at all.

I guess it appears to me that the 'safety-net' aspect is what gets the attention.

-ERD50

My bold.... I agree with this... this is what politicians used to get more benefits... because a few Granny's (now more than what we would hope) are living on that paycheck... and this is their 'safety net'...

So, it has morphed into what you are saying.... but that was not the intent... well, maybe in a way it was because it does have the disability payments...

 

[samclem]

I have no problem with the safety net, the rest is awfully inefficient.

Given real politics and real human nature, I think I'm happier with the present SS system than with a pure safety net. As presently structured, we have a program that gives people a higher check (marginally) if they put in more money. It encourages work, and it doesn't penalize people for prudently saving for their retirement years. If we had a needs-based safety net, we'd just have another welfare program.

For many retirees with moderate retirement savings, SS provides a steady monthly check that has taken the traditional place of a DB plan. They've got savings, but not nearly enough to allow them to pay their bills with a 3-5% withdrawal rate. Under the present system, these folks are okay, and they've got that nugget of cash to see them through some bumps. If we changed to a needs-based safety net system, they'd just be encouraged to spend that down to nothing in order to qualify for the govt handout. I'm not sure the resulting situation would be good for the beneficiaries or for society.

We've created several successive generations of middle-class and poor retirees who are dependent on the government. I think this is now baked into the mix. Based on what I've seen and contrary to what I'd like to believe, I now think most Americans will not voluntarily and judiciously provide for their own retirement. Given that I'll be forced to pay for those who fail to save, I favor a broad-based mandatory "retirement insurance" system. I think we could add moderate elements of privatization, ownership, and limited "investment choice" to the system to significantly improve it, but at it's heart it needs to force people to contribute and it needs to provide a large enough monthly check to allow a low-wage retiree to keep body and soul together.

 

[ERD50]

Given real politics and real human nature, I think I'm happier with the present SS system than with a pure safety net.

As I said (and Texas Proud just agreed with), I'd be more OK with it if it was really 'sold' as a third leg of the retirement stool. I'd like to see it really separated from the 'safety net' (which we need). I'm not saying we should simply eliminate SS in favor of safety nets, I'm saying SS should be a real, pay-as-you-go system, with regular 'hit them over the head' style messages about how saving now is going to help the individual in retirement, and the safety nets won't do much other than maybe keep them near poverty level. Really sell the individual on their need to contribute (and some level could be forced), and also provide reasonable incentives.

Given that I'll be forced to pay for those who fail to save, I favor a broad-based mandatory "retirement insurance" system. I think we could add moderate elements of privatization, ownership, and limited "investment choice" to the system to significantly improve it, but at it's heart it needs to force people to contribute and it needs to provide a large enough monthly check to allow a low-wage retiree to keep body and soul together.

Like that. And I think the govt could provide the annuitization to protect the individual against longevity risk. That could be one of those services that I could see the govt fulfilling better than private parties, with the caveat that they do a reasonable job of administering it.

-ERD50

 

[Emeritus]

I take offense in that broad-brush statement. If it applies to you, then make it a personal statement, rather than attaching others to it as you do. If you look up the $ amounts that US citizens have personally and freely donated to causes like the Tsunami, or to Haiti, etc, you have clear evidence against your stance. And even for those who get a tax deduction, it is still money out-of-pocket. I see that as a (an oft-repeated) misrepresentation of what many of us are saying.

Some of us are not in favor of cutting the benefits that we were forced to pay into for many years. I think it is more helpful to phrase it as - would you take the opportunity to eliminate the payments and accept the elimination of the benefits? It's not the same. Obviously.

It has been explained so many times, yet still repeated so often that I must wonder if there is an agenda behind the repetition.

-ERD50

Hey if folks will support the V-22 osprey as a charitable gift to the marine corps , go for it. IMHO As an expenditure it is simply waste and fraud

However it is absolutely critical from an economic perspective to distinguish between expenditures and transfer payments. Social security is a transfer payment. Its not an expenditure. It may be a good or bad one , but its not the same as expenditures on building bombs or mass transit. Expenditures can be either good or bad. But they re not the same as transfer payments.

The key issue is What consumption do we want to do without?
Right now!!! And it has to be reduction of consumption that doe not generate future costs

What is the least socially productive consumption? that tells us how to reduce consumption in a way that generates future wealth

Then we have to figure out, one way or another the most socially productive investment.

Most countries believe that investing in their children is the most productive investment for the future. Beyond that there is a lot of debate.









.

 

[samclem]

The key issue is What consumption do we want to do without?

Maybe the key issue is "About this decision on which consumption is most beneficial: Do we get to make the decision as individuals, or is it to be made as a collective (some of us deciding for all of us)"

Then we have to figure out, one way or another the most socially productive investment.

See above. And, in addition: "Are these investments to be made with the private resources of individuals and corporations, or with money taken from them and re-spent by government?"

 

[Emeritus]

Oh for goodness sake

Anyone anywher who thinks there is some personal wealth or money that is not a joint arrangement between an individual and society should simply go to Kabul and prove it.

there is no effective government there. your property is what you and your buddies can survive holding on to against nasty people with lots of guns

As I teach my students Authors create books but only government can make it into "property". If you want resources to be called "yours" you need government and you have to pay for it.

Or go to Kabul and try your luck in armed anarchy

 

[FinanceDude]

I've already reconciled myself to the fact that my taxes will go up and my benefits will go down. I don't fight it, and I don't complain about it. It has to happen. And if there were a serious politician who had a serious plan to do that, I'd vote for him or her.

Paul Ryan............

 

[FinanceDude]

My point was that the oft heard argument (and one made by you and eluded to by Bikerdude) that "benefits shouldn't be cut because I paid into the system" is bogus because everyone has paid, or is paying, into the system.

I don't see the need to spare current benefit recipients of means from the chopping block.

How about stopping the payments once the recipient gets back what they put in while paying in, plus a modest return of 3% on their money the govt held for 40 years or so?

I just put a big ZERO in all my retirement calculations..........

 

[samclem]

Or go to Kabul and try your luck in armed anarchy

I wish folks would stick with one bogeyman. It's confusing when they switch from Somalia to Afghanistan.

Does this argument prove persuasive to your students, or do they recognize a false dilemma appeal when they see it?

 

[FinanceDude]

Oh for goodness sake

Anyone anywher who thinks there is some personal wealth or money that is not a joint arrangement between an individual and society should simply go to Kabul and prove it.

there is no effective government there. your property is what you and your buddies can survive holding on to against nasty people with lots of guns

As I teach my students Authors create books but only government can make it into "property". If you want resources to be called "yours" you need government and you have to pay for it.

Or go to Kabul and try your luck in armed anarchy

Wow..........

 

[Gone4Good]

Paul Ryan............

I said serious. Ryan's "Roadmap" doesn't balance the budget. It only does so (in 2082) by ignoring the revenue lost by his tax proposals. He had the CBO analyze his spending cuts, but instructed them to use the higher revenue projections under the existing code. The Brookings Institute's analysis of his tax proposals shows that we'd still be running 4% structural deficits with the Roadmap, even after privatizing SS and Medicare. That's not serious.

 

[Emeritus]

I wish folks would stick with one bogeyman. It's confusing when they switch from Somalia to Afghanistan.

Does this argument prove persuasive to your students, or do they recognize a false dilemma appeal when they see it?

I teach my students not to put argument statements in questions. You have to prove the statement first, and then ask the question.

 

[GregLee]

However it is absolutely critical from an economic perspective to distinguish between expenditures and transfer payments.

Why is it critical?

 

[Emeritus]

Why is it critical?

from wiki

Transfer payment


In economics, a transfer payment (or government transfer or simply transfer) is a redistribution of income in the market system. These payments are considered to be nonexhaustive because they do not directly absorb resources or create output. Examples of certain transfer payments include welfare (financial aid), social security, and government subsidies for certain businesses (firms).

I take my 35 student class. They each take out a dollar. We pick one person at random and give them all 35 dollars. Or we take one person with 35 dollars and we give one dollar to each person in the class. These are transfer payments. There are no expenditures or productivity or anything economic. The society has the same amount of money as before.

Social security is a classic transfer payment. The recipient spends the money instead of the payer, but the transfer itself costs almost nothing except tiny administrative costs.

To know the true size of government (or the economy) you have to subtract transfer payments.

There is some debate over certain payments as to whether they meet the definition of transfer payments. e.g. are veterans benefits just deferred compensation.

 

[GregLee]

Social security is a classic transfer payment. The recipient spends the money instead of the payer, but the transfer itself costs almost nothing except tiny administrative costs.

It's a relief to hear that social security costs almost nothing (I was hearing that the system was in terrible trouble). But I'm not sure you've said why the distinction is critical.

 

[Emeritus]

It's a relief to hear that social security costs almost nothing (I was hearing that the system was in terrible trouble). But I'm not sure you've said why the distinction is critical.

Because expenditures take real resources, transfer payments don't.

Transfer payments re not without effects, but they do not involve a "cost"

If you have 4 kids and you leave all your money to one of them or split it among all of them, there is no "cost" or expenditure.

FWIW most pension systems in the whole world run on a PAYG basis.

The problem is not the payment, its the effect on labor supply other wages etc.

That is why money and or wealth and or resources is always a public private partnership. The economy is a machine that produces goods and services. Only those goods and services can be consumed. Transfer payments can determine which goods and services get produced, and in part at what cost, and who gets to consume, but do not in and of themselves cost money.

If you confuse the two you make bad economic decisions.

 

[BookPerson]

Oh for goodness sake

Anyone anywher who thinks there is some personal wealth or money that is not a joint arrangement between an individual and society should simply go to Kabul and prove it.

there is no effective government there. your property is what you and your buddies can survive holding on to against nasty people with lots of guns

As I teach my students Authors create books but only government can make it into "property". If you want resources to be called "yours" you need government and you have to pay for it.

Or go to Kabul and try your luck in armed anarchy

Remembered this comment when reading the following:

Real Estate Collapse Spells Havoc in Dubai
AT:

http://www.nytimes.com/2010/10/07/business/global/07dubaibuild.html

WHERE:

"Dubai lured people to a gold rush in properties at the height of its real estate boom — including business and political leaders from Afghanistan who invested the deposits from Kabul Bank, one of the country’s largest. The near-collapse of the bank in September was largely a result."

AND:

" "Dubai’s real estate regulators have issued a flurry of rules since 2008 to clarify the situation in Dubai and to comfort potential investors. But new rules sometimes contradict others issued just months earlier, often in ways that leave developers with the advantage and property buyers in a legal limbo, making many wary of ever investing in Dubai again, Ms. Yamalova said.

"Mr. Coutts, the Jones Lang LaSalle executive, said that because Dubai had grown so fast, the government was learning on the job. In more mature markets, “you had 200 years to develop a legal framework,” he said. “It’s now becoming clearer what kind of a legal framework is needed to regulate development here.” "

 

[GregLee]

If you confuse the two you make bad economic decisions.

Could you give an example of a bad economic decision which resulted from this confusion?

 

[eridanus]

I am willing for them to get rid of the Education dept completely... I will pay the higher local taxes.

I'm willing to give up public education. You want your kids to learn and succeed in life? Pay for it yourself through donations/usage fees.

I am willing for them to reduce SS by say 15% when I start to get it...

I'll raise you 35%.

I am willing for them to get out of the wars that seem to drag on forever.... (I was willing to pay for them at the beginning... but heck, win the dang thing and get out... stop this nation building stuff)...

Stop the wars, lop off 25% defense spending, and then freeze it.

What are YOU willing to give up so this huge debt does not get passed down to our children and grandchildren??

We need more toll roads.


We also need a subscription based firefighting service.