Posted on 08/25/2009 2:10:02 AM PDT by Yosemitest
If the estimates are for a 75 year period, then that would be implicit in the figures. We're talking about a 15% loss for all wage earners, for 2-3 generations.
Loss? You're still confused about accounting.
I understand that. Is there anywhere in those calculations allowance for the cost to collect and redistribute that money?
I'm confused about how that kind of increase in the tax burden on our children and grandchildren to pay those liabilities can be considered of no economic consequence.
Understand that medicare and medicaid are currently funded almost entirely out of general revenue from the income tax. The tiny 2.9% payroll tax dedicated to it does not remotely cover its outlays. For social security, the amounts being collected right now do exceed those outlays, and will for something like another 10 years. Neither is actuarially sound, in the insurance sense of collecting as much in premiums as is promised in benefits, the time value of money (interest) taken into account.
The unfunded liability calculation is basically the amount of ongoing general tax revenue required to pay for them, divided by the current interest rate. Mathematically speaking that looks larger when interest rates are low.
It is not much more than a pious wish that we had that much extra capital. The actuarial reality is that health costs cannot continue to grow that fast and be paid for with a blank check, nor can low retirement ages and higher than inflation COLAs be granted to every future retiree when there are twice as many of them per worker, without each such worker paying more in taxes.
It is obvious to me what the conservative solution to that issue is. Gradually raise the retirement age, slow COLAs to inflation (right now they are pegged to wage growth, which is as much faster as real economic growth and makes it impossible for the real economy to catch up), transition medicare to a catastrophic insurance only level of coverage, and provide full coverage only to a means-tested subset of Americans who can't afford private insurance plans. Also allow existing workers to contribute a portion of their current SS premiums to private accounts of real funded money that they own, and gradually raise the portion so allowed.
The reason to do all of those things is because middle class Americans can stand on their own two feet, income from real capital can fund costs better than taxation ever can in efficiency terms, and the only way to control cost growth is to stop subsidizing sectors with galloping prices. The obligations that younger generations have toward older ones should be met by the former passing on their accumulate wealth to the latter, voluntarily and by private means, and the government should get out of the business of standing in between them and lying to both sides. Not because we don't own everything, we do. It is just the honest, straightforward, businesslike way to handle pensions and health care.
Then the available options seem to be to either not pay the benefits, and the people that were relying on them cover those expenses out of their own resources while they can, or we borrow more money to cover the payments, resulting in more money being unavailable for investment in the private sector and pushing the problem further down the road.
Ping for later.
This seems like a good plan to me!
The calculation asks whether the *payroll taxes only* cover the *entire* cost of entitlements. Not whether *all federal revenue* covers them. They do, handily, but there is plenty of other stuff those general taxes are expected to pay for, as well as entitlements. When you include all of those, too, you arrive at mrely the question whether the budget is in balance.
Which depends, for the long term, merely on whether federal spending grows faster than the economy or slower - it can't grow faster indefinitely than the economy that pay all the bills.
The available income stream is 20% (federal tax share) of $14 trillion per year (the economy) growing at 6-7% per year (total nominal economic growth, both real growth and inflation). It really doesn't matter which portion of that income comes from payroll taxes as opposed to income taxes, nor whether federal expenditure gives checks to old people or salaries to Marines. That is the actual budget constraint, long term, and the only one.
And it is a heck of a lot of money, a very large positive sum not a negative one. We are dickering over who gets what share of it, not whether there is anything to share. There is, a ton, and more all the time.
This is the richest society in human history, and it is utterly absurd that I have to go to these lengths to explain to otherwise sane men that we are not poor. If you want to see poor, go to the Congo.
No amount of silly ideological crap can make the United States of America at the height of its power and prosperity into that. It is an insane pretense, it merely needs to be analyzed dispassionately to evaporate into smoke.
On paper it looks the same, but I question the long term consequences of basing the decisions on only that, particularly in our situation where authority of the government entities involved to even be engaged in it in the first place is highly questionable.
No human activity adds to or takes away from the matter in existence. All we ever do is rearrange it in ways we and other people find more useful or desirable. When a trucker moves goods from where they are less wanted to where they are more wanted, he adds value as surely as the man who puts pieces together on an assembly line. When a diner provides the convienence of preparing food to order, it adds value. When an instructor conveys a technical method to a class, he adds value.
The test is in all cases the same. Are men willing to give up values to receive the good or service, greater than the cost to the provider of providing that good or service? If they are, willingly, then they value the output more than they did the inputs. Rearranging the inputs that way pleased more people or pleased them more. The whole art of economy consists in moving any resource to the place where it can do the most good, and every shift that adds value is based on such a reallocation of real resources, a rearrangement of existing goods, and of use of worker's time.
As for "without manufacturing", all economic goods have complementary uses. The value each adds ("at the margin", we say, meaning the last increment of each) with all the other goods being present, is less than the loss in value that would occur if one of them disappeared completely. Some of each kind of resource is needed to let others do their own jobs. (We would produce much less value if we had no money as a means of exchange, for example, but that doesn't mean having money contributes all the value we produce). But no one class of goods is any more magical than any of the others in this respect. And the test of how much of each is most beneficial, is the value we all put on the whole mix.
Throwing extra money at health care raises health care costs for example. The net overall "loss" in that is simply that it takes 14% of our incomes to pay for all the health care we receive instead of perhaps 7%, perhaps 10%. In the absence of such subsidy we'd spend a little more on technology or travel, say. It is those opportunity costs in other services foregone, that are the real efficiency loss in delivery health care through a government-subsidy system instead of a market one.
I continue to wait for the slightest acknowledgement that the sort of rhetoric and reasoning Beck was engaging in, is misleading and irresponsible and preys on ignorance, when it suggests we are broke and poverty-striken. It may in fact reflect such ignorance on his part, that is the likely as well as the charitable explanation. He has heard such talking points in Heritage Foundation memos and he repeats them breathlessly without understanding any of the accounting, let alone economics, involved.
I don't get why it is pulling teeth to get this acknowledged. Anyone claiming that Americans are poor is either ignorant of economics, or he's lying.
Paying an additional 7% per year for healthcare doesn’t seem like a lot, but looking at your figures on net worth, 7% per year is about what the average net worth increase of the average American household has been.
Next question: Can the US economy be absorbed in a one world economy? Can our wealth actually be redistributed?
As for "redistributed", the wealth of each individual is changing all of the time. Mostly upward, since the average moves upward and the elderly die, transfering assets to their living heirs and relations. There is nothing static about a particle of it.
But if, taking the question charitably, you are concerned whether the bulk of our wealth can be transfer to foreign ownership, there is no prospect of it happening. It is theoretically possible, that is the most that can be said.
The reasons are (1) our trade with other countries is voluntary. Those engaged in it here believe themselves to be benefitted by the side of each trade they took. Men can be wrong about such things in detail, but as an overall average and over the long run, they in fact are not. When we send currency abroad it is not for giggles, we get real capital in return.
(2) Trade flows approximately balance in the income transfered. Recently, foreign investors have sent more capital here than the reverse, measured by the value spent, but they have been buying safe assets that return little, and at a time when the dollar has been declining. Americans, meanwhile, and especially American corporations, have been investing abroad, in direct plant and equipment and in portfolio investment in developing countries, which in the intermediate or long run have always earned more than safe US treasuries. As a result, if you look at the amounts earned by foreign holdings rather than the amounts spent on them, they are roughly even, today.
(3) Our savings rate is what controls how much foreigners buy of US capital assets. It was low for the last 10 years, but has jumped again in since the crisis last fall. The reason for both is some people were borrowing beyond their means, effectively "dis-saving" for the rest of us, and in the credit smash they were cut off from further borrowing. Most of us have been saving right along, and that reasserts itself when net borrowers do not use up those savings. When we fund all our new capital investments out of our own income, we do not import it from abroad. As an accounting identity, foreigners can be net buyers of our assets only if we invest more than we save ourselves.
Whether others increase their share of US assets, therefore, is up to us in our private savings decisions. As always, we are in charge of our own economic destinies and responsible for our own economic affairs.
I'm not trying to be dishonest. Of course it doubles *after* paying our living costs. The point is, that wealth increased because we invested some of our disposable income into it.
Maybe that extra 7% I had to spend on health care would have gone to taking a vacation trip, or buying consuer electronics. Or maybe it would have gone to savings, or investment, or finishing my basement, or paying my mortgage off a little earlier.
Your arguments assume, on no particular basis that I see, that the extra cost cannot have any negative effect on my ability to accumulate and add to my net worth.
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