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I disagree. I think SS will be modified, but mostly in the form of reducing benefits after a certain age. You cannot raise taxes any more, and inflation is IMMEDIATELY picked up in the financial markets and the currency adjusted accordingly, meaning prices shoot up.

Oh really. So the cost of living has pretty much stayed the same for the last 10 years, increasing no more than a percent or two per year? Housing prices are not much higher than they were in 1990? Take a look at M3.

Anyway, deflation is the problem now.

I think gradually, the 'privatization' plan will be enacted. Americans will not turn their backs on the SS recipients, no matter how wrong or flawed the original concept.

Americans might not but the government will find a way. Deflation will make those trillions in debt even more difficult to pay back while simultaneously eroding revenues. Since there are no SS savings and there will be increasing number of people drawing upon it, it is tautological that someone will get stiffed.

It's just something we don't do---and it is a contract. So, yes, these savings do exist.

There is no contractual agreement.Legally, the government doesn't owe us spit. Social Security is part of the general fund, its just another form of income tax.

Here is a good example of "forced savings." In WW II, due to restrictions and rations, you simply couldn't spend money. So people saved, often through bonds. When the war ended, they went on a massive consumption spree. That money didn't go anywhere, even though the government had it.

That's not exactly what happened. Addressing this issue would take a while.

I'm not worried about our "manufacturing base."

Me either. Its gone. A friend of mine just moved his business to China (about the fourth person I know who has done so). He remarked upon returning that before he went he thought American's manufacturing base was dying but now he was positive that it was gone. He just couldnt get over their "can do" attitude. Even my high tech business has tired of waiting for the bureaucrats in this country to get in gear and has brought our technology to market in China first. Socialism has become so overbearing in this country that China's markets are often far more attractive. We had the freedom to implement our technology on day 1 in China. 5 years later in the US we are still prostrating ourselves before Congress, the FAA, the IRS, EPA, etc, etc.

We remain BY FAR the most productive nation in the world.

True, but productive citizens are in the minority and are increasingly mobile. Furthermore, our "education" system rarely yields the quanity of quality we need to keep this place running. Most hard core r&d firms are staffed by about 50% foreigners...Obviously, in the future they will flee to the places with the greatest economic freedom.

I question your stats on Commm China, but in places like that, they can have a "growing" GNP and have it be merely occur by throwing human bodies at production, not by adding value.

Go there..Capitalism is in the air....Once they chuck the government, step back....They won't be paying any stinking Social Security..Our high tech sector will be insulated for a generation or two but the lower tier of the economy will experience a massive deflationary shock accompanied by rising taxes and rising social security obligations.

But it doesn't help to portray the U.S. as in ANY way worse off than the ChiComs. If you look back 20 years, there were actually people making EXACTLY the same arguments you are advancing here---that our mfg. base is leaving---and some people actually said (Galbraith, for instance) that Russia might soon eclipse us.

Obviously China is not better off than the US. This isn't my point.

Russia has a 15% flat tax and the Chinese would revolt if taxed at American levels. (I've seen them forcibly remove tax collectors from their markets ...when is the last time you saw an American get physical with an IRS agent and get off scott free??).

We could instantly turn the economy around with a massive, and I mean MASSIVE, tax cut. Incentives to save can be much better too. GOvernment spending could be slashed without seriously damaging ANY major problems.

The tax cuts were more symbolic than real. But you're right massive cuts is what we need. I doubt we will ever see serious tax reform in this country short of a massive economic crisis. There simply isn't any serious opposition to Socialism.Even then I imagine the mobocratic calls for a New New Deal will win the day. I hope this won't be this the case but it seems to be a probable one.

The increased levels of spending we are seeing now are quite real. Deficit spending is simply a tax they haven't figured out how to collect yet.

Adam, on housing prices, in my neighborhood---a brand new subdivision in the rapidly growing area of southern Ohio---prices are almost exactly what they were five years ago. I don't know about 10, as I wasn't buying houses then.

The same is true for the parts of AZ where my mother lived. Housing, of course, is "location, location, location," and if you are in a hot area, prices will soar. But hot areas soon cool, unless it is prime Manhattan real estate or beachfront property.

If you think Communist China is just going to "throw off" its government and become a capitalist paradise, you are flat wrong. I don't put it past them to change governments, but that is irrelevant. Russia is the model: you cannot have 400 years of "government" that is not based on the rule of law, the sanctity of contracts, or other necessary free market practices. Simply supply and demand won't work---it's called the mob, as we see in Russia. Yes, Russia has a flat tax. I applaud them. But they need far more than that to become "capitalist."

Let me give you an example of what the Russians and Chinese are up against. In 1990 I attended a conference in Germany, just as the Iron Curtain was falling apart, with MANY leading then-SOviet economic ministers who were genuinely interested (as per Gorby's dictates) in trying to understand capitalism so they could apply it or at least appropriate parts of it.

We suggested the quickest way to get capitalism rolling was to take state-owned factories, assess their value, print stock, and give shares of stock to each worker and manager as a means of privatizing the government assets. The communist economist looked at me and said, "But you don't understand. Even if the government SAID it would do so, no one would believe it. We don't believe anything the government says." That told me what they were up against. There was NO "impartial referee" to enforce laws; no trusted regulator to ensure that a "gallon" was a "gallon."

You whine about the FED but the FED is infinitely more honest and reliable than ANY other monetary organization in the history of the world, except for the Scottish free banking system of the 1840s. You complain about deficits as "hidden," but there is nothing at all "hidden." Monetary values are INSTANTLY measured worldwide against all other currencies and against commodities and in futures markets and that is why, as you say, we can agree there is deflation.

As for Social Security: written or not, this is viewed as a contract, and you apparently are not talking to "normal" people if you think that ANY government EVER would be able to reneg on this. Amend it, perhaps. Modify, yes. But not end it. It will be paid.

Now, you and a couple of other people are totally hung up on M3. That may ONCE have been a valid indicator, but is not anymore. As you said in your answer, it's a long explanation, but basically, over the last 30 years, most (not all, but most) economists have concluded that the price indicators we have are DEEPLY flawed; that they don't BEGIN to capture genuine "value"; and that as a result, estimates of productivity and value added are WAY understated. Multiply that by 30 years, and you can see why M3 is a somewhat meaningless stat. If we are looking at inflation as "too many dollars chasing too few goods," and the VALUE of the goods is constantly understated, we have no had inflation for a while. I've mentioned to you the multiple new studies of the stock market that show that it was likely well BELOW the real value of the corporations it represented even in the 1980s.

The "Gloomster" view of manufacturing you propose would make Robert Reich proud of you. It's nonsense. We manufacture some things, not others. One of the most important things we "manufacture" is ideas. I agree, it is disgraceful that a large portion of our engineers and scientists are foreign born. But you know what? In the 1920s, a large portion of our chemists and physicists were also foreign born---Jews and Italians and Germans, some just off the boat. The a-bomb was heavily influenced by immigrants---NEW ones, like Fermi, Einstein, and later, Teller.