Today's Krugman column on social security, The Final Insult, is a gem. A small taste:
But Mr. Bush isn't calling for small sacrifices now. Instead, he's calling for zero sacrifice now, but big benefit cuts decades from now – which is exactly what he says will happen if we do nothing. Let me repeat that: to avert the danger of future cuts in benefits, Mr. Bush wants us to commit now to, um, future cuts in benefits.
What columnist is more deserving of a Pulitzer?
I think he could have had a little more zing today if he’d found a way to work in the costs, something like, “Mr. Bush wants us to BORROW TRILLIONS and commit now to, um, future cuts in benefits.”
But I’m not complaining! PK is indeed the best out there.
Krugmans column would have been a great deal better if hed got his math right. The middle class guy on $60 k makes out like a bandit under the proposals:
http://timworstall.typepad.com/timworstall/2005/05/krugmans_number.html
I will indeed face benefit cuts because the money I am allowed to divert from the inept management of the SSA into an investment of my own choosing will pay off handsomely. I will be able to take a benefit cut, because on the whole, I’ll be far better off. Possibly the most intelligent and wise policy proposal from the Bush administration thus far.
Krugman is a democratic patsy. He’ll cook the books to give the dems whatever economic “conclusion” they want. You want to give that kind of partisan pseudoscientist a pulitzer?
Bricklayer writes:
> … the money I am allowed to divert from the inept management of the SSA …
How is the SocSec management “inept”? Details would be appreciated.
> … into an investment of my own choosing will pay off handsomely.
Unlikely, especially after the 3% “clawback” required by the Bush plan.
> … Krugman [cooks] the books to give the dems whatever economic “conclusion” they want …
Not at all, as you’d know if you’d read any of his past books and articles. When the Democrats held the White House, Krugman went at them just as harshly for their bad economic policy. On the other hand, the Clinton economic team was so much more competent then the Bush team, there simply was less to critique.
It’s not like I’d ask Bricklayer to give up on his fantasy that whatever the current administration says it’s up to is in fact what it’s up to or to give up the fantasy that what they say will happen will in fact happen, but I’d think that before he entered the SSI debate in this way he’d at least do a little reading (not necessarily Krugman, BTW, but perhaps Brad DeLong, maybe, or some economist of his choosing)–yes, reading, on what the proposal is, how likely it is to make him a killing, how ept the current system is, if you will, at least something to show us he’s not just swept up in a cult movement.
But I’d be proved wrong. Again, politics of distraction and parrotting the party line, eh, Bricklayer? Rather than disputing the Krugman position with facts, figures, or even contradicting expert opinion, we get a made-up paranoid delusion that Krugman is manufacturing figures for Democrats. Dream on fantasy boy. They’ll welcome you with flower petals in Mosul when you retire.
“Possibly the most intelligent and wise policy proposal from the Bush administration thus far.” Educate yourself. You don’t know what you’re talking about.
Again.
You assume far too much. Again.
For convenience I will number my propositions and conclusions.
1. A large body of research has shown that over the long term (15+) years, a diversified portfolio of equities outperforms any other investment on a risk/reward basis. No serious economist disputes this.
2. It is impossible for the government to invest money more efficiently than the private sector. Because if it did figure out the most efficient way to invest money, somebody in the private sector would simply copy it. Wealthy billionaires do not hand over their money to the government to invest it. To the contrary, they avoid giving a cent if they can avoid it. Wealthy billionaires are or are advised by economically rational individuals. No serious economist believes the government can invest money more efficiently than the private sector. No let me correct that, communists do. (can I ask why so many people on this blog have so much faith in the managment of the social security administration, yet so little in nearly every other governmental arm?)
3. Because the government cannot invest money as efficiently as the private sector, to match the private sector’s return on investment for an individual retirement “account” (using account as an individual’s return on social security) the government must “manufacture” a return, i.e. make up for the shortfall somehow.
4. To make up for the shortfall of its inefficiency, the government must find some other way to get cash to the retiree. It has three options.
5. There is no such thing as a free lunch. Beware of the man from the government who knocks on your door and says he’s there to help you.
6. OPTION 1: Print money. Literally. Unfortunately this causes inflation. Inflation decreases the retiree’s real income. Inflation sucks. See #5.
7. OPTION 2: Borrow money. This is done by issuing bonds or other forms of government debt. This increases the demand for money. This increases the price of money, aka the interest rates. High interest rates cause all sorts of problems, including slowing of economic growth, and higher prices, a situation affectionately known as stagflation. It decreases the value of fixed income investments the retiree holds. It makes it more expensive for him to get a mortgage or a lease/loan on a car. It may make his rent go up. It makes borrowing more expensive for companies to borrow and grow, which hurts the private portfolio the retiree may have. It discourages private home-ownership. Did I mention it increases the national debt? See #5.
8. OPTION 3: Raise taxes. Ahh, you liberals love this one. But absent the annoying leftist economist here and there who believes that forced weatlh redistribution is a good thing, most economists agree that new taxes are always bad. If the retiree has income from non government accounts (outside of social security), that income will be taxed. Even if retiree isn’t taxed, his hardworking kids and grandkids will be taxed, which, liberal anti-family values aside, many retirees view as an indirect tax on themselves. Taxes suck. See #5.
Unfortunately, many Americans are like pike, uneducated about the science of economics. That makes them succeptible to falling under the spell of the liberal “green tornado” as some conservatives call it. I think Buckley called it “a sky blackened by swirling banknotes”, or something like that. As long as government creates the illusion that money comes in, money goes out, its all so confusing that somehow magic must be happening and the government is benevolently efficient and improving the economy. A tax here, an entitlement there, it boggles the uneducated mind. Pike seems to think that somehow the government is producing something, that the money that shows up in the retiree’s mailbox just magically falls from the sky. Ahh, the liberals love the fact that payroll TAXES are called payroll “contribuuuutions”. No pike, see #5.
It also makes them succeptible to the latest partisan economist who comes out with a “study” that supports whatever theory his party wants. Both dems and republicans are guilty of this. People like pike and michael that put Krugman up on a pedestal forget that economics is a social science, not a hard science. The “science” of economics is no more a “science” than parenting or leadership, or law for that matter. There are economists who become popular because the bases of their proposed policies are founded upon a mix of logic, human experience, and other economic principles that have stood the test of time. There are other economists who become popular because they have big mouths, are overly political, and play with numbers on a spreadsheet until they get what they want.
This is not to say all the liberal criticisms of partial (I want full) privitization aren’t valid. There probably do need to be some rules about how much risk a person may take, to avoid the problem that some idiot blows it all at the race track and then wants back on the dole. That’s fine, we already have that with 401K approval schemes. There may also be a need for mandatory risk reduction (movement to private or government high-rated debt instruments) as the retiree-to-be ages. And of course, we all need to be taxed to make sure that widows and orphans are looked after, but keep in mind despite liberal guilt games to the contrary, widows and orphans make up a miniscule portion of social security.
Nobody argues that a state run plan must by definition fail. It will simply never be as efficient as one that allows for partial or full privitization. Also, I have no problem if there is choice. Let me out, and cut my benefits. Let me out 100% of payroll contributions, and I’ll never ask for a dime. Give my money to some dope who thinks he’ll make out better with his Uncle Sam managing the money instead of my Uncles Adam and Milt.
It is every bit as politically motivated as Krugman’s article, but if anyone wishes to read the rebuttal by Jack Kemp to Krugman’s article, it is at:[http://www.townhall.com/columnists/jackkemp/jk20050509.shtml]. Warning! It contains distasteful political comments. Bricklayer’s comments do not take note of the proven propensity of average investors to move their funds to the stock market at its peak, then ride it down to its pits, then shift their money to Treasury Bonds and miss the recovery, only to move again to stocks when the market is at its peak. Ever hear the quote: “If you had taken my money from me on payday, kept 10% for your trouble and just held it for 10 years and gave what is left back to me, it would be the best investment I have made in the last 10 years.” Your rosy scenario for private accounts does not reflect the consideration of demonstrated human nature. Ask any stockbroker.
Um, mister bricklayer, you forget something:
8. OPTION 3: Raise taxes. Ahh, you liberals love this one. But absent the annoying leftist economist here and there who believes that forced weatlh redistribution is a good thing, most economists agree that new taxes are always bad. If the retiree has income from non government accounts (outside of social security), that income will be taxed. Even if retiree isn’t taxed, his hardworking kids and grandkids will be taxed, which, liberal anti-family values aside, many retirees view as an indirect tax on themselves. Taxes suck. See #5.
Now, correct me if I’m wrong, and please note exactly where I go wrong. As I understand it, the tax cuts already doled out to wealthy folks could have payed the gap that may or may not happen to SS. Since the middle class has already payed in to SS, and the value is stored as bonds, they might think that SS is payed for. If your contention is that the middle class was paying a stealth tax, and that, say, tax cuts for the rich, or the Iraq war, or something ate that stored value, then perhaps you should say so. If not, then there is no real problem. At least, not one we’ll see for a long time. Ah, you say, we sould fix it now… Ah ha! I say, when you might need new siding for your house later, and a bulldozer is also headed for it, which threat do you address?
Bricklayer again with just the party line b.s.
Wall Street Journal good enough for you?
WSJ.com – Bush May Alter Private-Accounts Plan: As currently envisioned, an account-holder would need a real return — that is, return after inflation — of 3% to exceed the offset in the traditional benefit. But many outside experts say 3% is too high, and will limit the accounts’ appeal. They noted Treasury bonds are now expected to return only about 2%, and stocks a few percentage points more. Thus, a private account of half stocks and half bonds would run a significant risk of returning less than 3%, leaving the account-holder worse off than someone who stuck with the traditional benefit.
Some experts have urged the administration to use a lower offset rate. That would make the accounts costlier to finance as long as Social Security sticks to its assumption that real Treasury yields average 3% in the long run.
Mr. Hubbard said the administration picked 3% because Social Security actuaries estimate that figure to be the government’s long-term cost of borrowing. It is the figure that makes private accounts ‘fiscally neutral,’ he said…. Mr. Bush’s proposed accounts are closely patterned on the second of his 2001 Social Security commission’s three proposals, although that model used a 2% offset rate. A former administration official says a change to the offset rate to between 2% and 3% has been discussed, with special attention on 2.7%.
[Commentary by Brad DeLong: http://www.j-bradford-delong.net/movable_type/2005-3_archives/000567.html%5D
It really does look as if they chose 3%, and then never ran the numbers–never ran the numbers at all to see what the distribution of private account returns would be.
One underlying problem, of course, is that private accounts shift risk onto beneficiaries, and that beneficiaries are more averse to risk than the government. Thus it is genuinely hard to make private accounts both attractive to those non-rich beneficiaries who are most averse to risk and also fiscally neutral.
[And that’s just one small facet of how the entire SS debate is one administration lie after the other. Do some reading, Bricklayer, and some thinking, and you’ll see that the party line you just recited is nothing but pie-in-the-sky crapola.}
[More:]
Jonathan Weisman reports on how Bush administration personal accounts would work. Think of it this way: the government is not contributing to a 401(k) for you, the government is letting you borrow some of your future regular Social Security benefits so that you can try to earn higher returns. But it’s a loan–you have to pay it back:
washingtonpost.com: Participants Would Forfeit Part of Accounts’ Profits: Under the White House Social Security plan, workers who opt to divert some of their payroll taxes into individual accounts would ultimately get to keep only the investment returns that exceed the rate of return that the money would have accrued in the traditional system…. [This] could come as a surprise to lawmakers and voters who have thought of these accounts as akin to an individual retirement account or a 401(k) that they could use fully upon retirement. [That is the gullible, like Bricklayer who buys the crap at pumped-up prices] “You’ll be able to pass along the money that accumulates in your personal account, if you wish, to your children . . . or grandchildren,” Bush said last night. “And best of all, the money in the account is yours, and the government can never take it away.”…
“I believe you should be able to set aside part of that money in your own retirement account so you can build a nest egg for your own future,” Bush said in his speech.
Orszag retorted: “It’s not a nest egg. It’s a loan.”…
If a worker sets aside $1,000 a year for 40 years, and earns 4 percent annually on investments, the account would grow to $99,800 in today’s dollars, but the government would keep $78,700 — or about 80 percent of the account. The remainder, $21,100, would be the worker’s….
If instead, workers decide to stay in the traditional system, they would receive the benefit that Social Security could pay out of payroll taxes still flowing into the system…. “In return for the opportunity to get the benefits from the personal account, the person forgoes a certain amount of benefits from the traditional system,” the official told reporters. “Basically, the net effect on an individual’s benefits would be zero if his personal account earned a 3 percent real rate of return. To the extent that his personal account gets a higher rate of return, his net benefit would increase.”…
But critics of the Bush plan said the proposed “claw back” renders the whole idea of “personal retirement accounts” virtually meaningless. Indeed, the system would ultimately look something like a proposal made by President Bill Clinton, in which the government would have invested Social Security taxes in the stock market…. Individuals would get a limited choice, and the government would still keep most of the returns.
“They hope people will think they will take on these accounts and after 40 years, they’ll have this huge windfall, but that won’t happen,” said Dean Baker, co-director of the liberal Center for Economic and Policy Research. “I think they’re trying to confuse people.”…
Weisman is, however, wrong, in his claim that the Bush plan looks like the Clinton administration idea to invest the Trust Fund in the stock market. Under the Clinton plan, the government insures individuals against the possibility that the assets in their private account will tank. Under the Bush plan, that risk lies on individual beneficiaries–which is a profoundly stupid place for the risk to lie, and something that will in all likelihood make the Bush plan a bad idea.
notherbob2-
You make a great point about economics. We’re talking about human beings, who do dumb things. But you’re also saying that my Uncle Sam KNOWS WHATS BEST FOR ME. He does? Then why does michael bitch so much about how Uncle Sam is handling the terrorists?
But lets address your concerns more directly, as they are legitimate. I have already conceded that perhaps investors should be confined to approved investments, such as professionally managed mutual funds. That takes “hot tips…shhhh” out of the equation by forcing class diversification. There are also managed funds that mix classes, i.e. they maintain a fixed ratio of equity/fixed income investments. I’d be willing to compromise and require this as well, to avoid investors trying to time the equity vs. fixed income markets as well.
But I also disagree with your stockbroker. First of all, stockbrokers are legalized bookmakers. Although you still hear the occasional story of someone losing their lifesavings to a stockbroker, this is not how the majority of americans actually invest. The majority invest in mutual funds, and have no say over exactly what is invested in when. Stockbrokers are usually paid more commission for equity trades than fund sales, so they tend to deal with a particular type of investor, or only get to see a small picture of what the investor is really doing.
Further, its not clear how much, over the long run, failed attempts at timing would really hurt. Its not clear they would fall short of the government return. And even if a few investors fail miserably and we have to bail them out with the dole, I would submit to you that would still be cheaper given the vast majority of investors who will suceed and all the benefits to society that implies. Keep in mind, somebody will get rich off their stupidity, and there can be mechanisms to get that money back to them.
But notherbob, why not let people do stupid things? After all, we allow people to become starving artists don’t we? Why not solve the retirement problem by not allowing people to choose low wage careers in the first place? Isn’t freedom of choice a fundamental cornerstone of American beliefs?
Again, your concern is legitimate, but reasonable minds could agree that with some oversight, the problems you describe can be avoided or mitigated.
entophilia-I don’t quite follow your point, but I’ll do my best. I love your rhetoric of tax cuts “doled” out to the rich. I love how liberals view my money as the government’s in the first place, and I’m “doled” out my own money. Classic! But seriously, yes, of course the system can fund itself by increasing taxes. As I said, there is no reason why the system should ever “fail”. Despite Bush’s use of the term “bankrupt”, that can’t happen in the lay sense of the term which is illiquidity. The government can always raise taxes, or print money. It can always give the retirees the cash as promised. The problem is that there are more efficient systems, and the government’s attempt to overcome inefficiency does produce “stealth taxes”. The system can be bankrupt in that it fails to keep up with inflation and has to “manufacture” the shortfall by taxing, printing, or borrowing.
The primary “stealth tax” is inflation. This happens if the government has to increase the money supply to meet its obligations. The other is slower growth, which means lower wages, brought on by raising taxes. If, as you say, the government invests it in “bonds”, then this fixed income asset class will always face a decrease in real returns equal to the inflation rate. Again, the government can never invest as efficiently as the private field can.
You imply that the government sometimes robs peter to pay paul, peter and paul being competing government programs. Economically, this is irrelevant. Politically it is, because then politicians can exploit the public’s lack of economic acumen and contend that the system is going bankrupt. It makes no difference how the government manages its internal budget, i.e. it either has to borrow, print, or tax to pay for iraq, or it has to borrow, print or tax to pay for social security. If they take money out of iraq and put it into social security, then iraq is underfunded and you’ll hear about a lack of body armour and vulnerable troops. Pick your poison. Your problem is really the spending on iraq in the first place. But economically speaking thats incorrect. And I hope pike is listening, because I agree 100% that republicans have misused the term “bankrupt” to scare people about social security. Your Uncle Sam can always print money to make up for inefficiency, it can always tax, it can always borrow. He can do that to pay for iraq, and he can do that to pay for social security. But again, say hello to stagflation. Let me put it another way. Suppose in your household budget you allocate $X for bread, and $Y for milk. Suppose you have less than $X+$Y. No matter how you juggle your internal budget, assuming you must have bread and milk, you’re going to have to borrow. Maybe you can see now that all you’re saying is, “well I don’t need milk.” Ok fine. That doesn’t mean you shouldn’t try to get the best price you can for bread. Maybe we don’t need iraq. We should still not waste our money on an inefficient social security system. Besides, we have iraq, sunk cost (I happen to think good long term investment, but that’s another argument).
The key is understanding that an inefficient social security system produces economic harm, and that the fact a check keeps showing up in the retiree’s mailbox is just part of the green tornado that pacifies and distracts ones attention from the inflation and slow growth caused by doing what was necessary to write that check.
There is one more problem that liberals, with their live-for-today attitude tend to ignore. That is the pathetically low personal savings rate in this country. It is widely believed that social security has created this problem. Why bother to plan for my retirement when social security will always be there? Just like the dramatic increase in home ownership has begun to create a change in the way people look at their finances and communities, many believe that a sense of ownership in one’s retirement will create the same positive effects and encourage greater savings. Employees with 401k access typically display this behavior…after seeing the magic of compounding develop after a few years of being part of a plan, they increase their contributions.
Again, why do you think its called “social” security? Because its a socialist program, no less socialist and inherently inefficient than socialized medicine.
The real deal on the Bush plan. Care to respond, Bricklayer?
Social security is first and foremost an INSURANCE scheme. It is a category error to compare it to investments, which carry risk, and which mean that some people lose out. The primary goal of social SECURITY is to make sure no one is starving on the streets or freezing to death in their old age. The rest is gravy.
>>Krugmans column would have been a great deal better if hed got his math right. The middle class guy on $60 k makes out like a bandit under the proposals:
>>http://timworstall.typepad.com/timworstall/2005/05/krugmans_number.html
Go look at the comments to Worstall’s post and see how wrong he is. His bar-napkin calculations don’t reflect reality.
Are you tossing me a softball?
1. The Center on Budget and Policy Priorities is a liberal think tank. Check out their website and google them. Find a more balanced source for a meaningful debate.
2. There is nothing on that page to really discuss. It gives their conclusions, without any reasoning. The best I can say with what they’ve given is: “I disagree.” That page is exactly what I’m talking about when it comes to partisan economists exploiting the public’s lack of acumen. Admit it, you don’t really follow what the hell they’re talking about, you just like their conclusions.
3. On the last point, to make an analogy to law, you’re asking me to discuss the outcome of a case without giving me the opinion to read. I can’t comment without a detailed discussion of the reasoning used to reach the ultimate conclusions. Hopefully, you now see that economists can do the same thing that partisan legal scholars can do: hide behind credentials, give the public conclusions, and the public that hears what they want to hear eats it up like candy.
The real question is, why call me out? Why not seek out credible discussions in favor of privitization, and inform yourself about the logic and reasoning of the other side? Why play a silly game of duelling experts (whores)?
I went to ant’s site referral. Without reading one word of their “analysis” anyone can guess from their mission statement that they think anything proposed by President Bush is Armageddon. The listing on their website of the projects they are currently reporting on confirms this guess. If you make up your mind by reading only material from organizations like this you would probably ask Johnny Cochran during the OJ trial if he thought OJ was innocent, and rely on his answer.
michael-
no economist would agree with your characterization of insurance as somehow distinct from other investments. social security is an anuity. in lay terms, yes it is risk free. no economist would agree with that proposition though.
the problem is the bad things the government must do keep returns at pace with inflation. look at countries where socialized welfare is a greater percentage of spending, like europe. what do you get-sky high unemployment, sky high taxes, tremendous government debt, a catastrophe in the making. the idea that the check in the mail has made you net wealthier is an illusion.
It is true that our entitlement programs are not so extensive, but the harm is the same even if to a lessor degree.
But putting all that aside, arguendo, why shouldn’t we also have our gravy? And why should you care about my cholesterol level? Why should my lower “contributions” to the system have any effect on you whatsoever, assuming I’m willing to take out a lower share later?
Ahh but you say what if I mess up and have to come crawling back. Well, then lets focus the debate on how rational that concern really is, instead of the nonsense that’s being advanced by partisan pundits. That is really the ONLY legitimate concern anyone could possibly have about privitization.
Its essential to see that social security taxes and investment returns come from the same source after all is said and done–corporate profits. If you force me into a diversified portfolio, how could my returns possibly be less than governments? So what does the government do if payroll taxes fall short? Raise taxes, print money, or borrow. Why not do the same thing to compensate investors whose returns fall short of a subsistence rate? Its the exact same result.
The only real “insurance” system we need then is the government’s commitment to print, borrow, or tax to keep geezers from freezing as a failsafe/safetynet. That is distinct from a government managed insurance fund. We should all be saving and investing for retirement in the most efficient manner available. If the government has to bail us all out because of poor economic growth, it makes no difference whether our negative returns manifest themselves as poor coporate profits (=lower portfolio values) or poor tax proceeds (resulting from lower corporate profits and higher unemployment). Again, the key to this understanding is that the money the government collects as payroll taxes doesn’t fall out of the sky.
Again michael, you’re just uncharacteristically saying that Uncle Sam knows best. He doesn’t. That doesn’t mean, as I’ve conceded again and again, that some controls on how people save for retirement shouldn’t be in place. But controlled choice will always produce better returns than government management alone. Always.
The only theoretical attack upon this school of economic thinking is that somehow when the government invests it is able to achieve economies of scale the private sector cannot achieve. No serious economists believe this. Again I correct myself. Communists believe it.
When did social security arise? 1930’s? When a temporary economic downturn started to give people doubts about capitalism just as communism was spreading like a disease? social security was a political compromise. we’re left with the damage. Back then all kinds of nonsense that persists today was introduced into the public vocabulary: “contributions”, “money kept in account by the government”, “insurance”. It functions nothing like an efficient private pension program. Again, stop falling under the spell of the green tornado.
” Without reading one word of their “analysis” anyone can guess from their mission statement that they think . . . “
Without reading. Guess. Brilliant analysis, Mr. Fulton.
–ant
“Wealthy billionaires do not hand over their money to the government to invest it.” Are you serious? Billionaires _love_ US Treasury securities, which is what the SS trust fund is relying on. Even W. is heavily invested in these, in spite of his repeated claim that they are worthless IOUs. And what do you think your ‘personal property risk-taker account’ will be allowed to invest in? The same securities and not much else. Read the paper, son.
Umph-
You misunderstood, or I was not clear. I meant that the government doesn’t have a magic way of providing the best return on your money given any particular risk level. That’s why nobody who knows the first thing about investing says “here Uncle Sam, take my money and invest it as you see fit, ##I’ll take whatever return you get on it because I know you’re so smart##” Smart investors do hand over their money to private mutual funds under precisely those terms, because funds are quite efficient at what they do.
What you’re describing is fixed-income investment. A contract to repay a loan with a #fixed# return. Here the investor is saying “I don’t care how you get my 4%, tax, borrow, print, but you MUST pay me 4%. If you make more, you keep the difference. If you make less, you must tax, borrow, or print. Otherwise I sue you.”
No rational person, no rational person, would hand over the money to the government without a promise of a fixed rate of return. Do you see the difference?
Nobody denies that fixed income instruments, indeed US treasuries and other bonds, are a healthy part of any diversified portfolio. To explain this mathematically to you is far beyond the scope of what is necessary here. In laymen’s terms, its not good to put all your eggs in one basket.
I guarantee you Bush, if he really does own some, is not 100% in them. Some people are, and thats fine. That’s their choice. But keep in mind, they have zero protection from inflation. Further, if they need to sell the bonds before maturity, and rates have risen, they will have to sell at a discount. Again, the introducing you to the time value of money and the math behind it is beyond what is necessary. Its enought to say that if I can buy a higher paying bond, then you must lower the price on your lower paying bond to make it worth it to me. On the other hand, they loaned money to someone that can always just print money to pay the interest and principal back. Thus there is no risk you will get those dollars back. The question is what will those dollars buy when you finally get them.
You couldn’t be more wrong about personal accounts being limited to US Treasuries.
Just out of curiosity, why did you assume that I’m male?
Bricklayer;
Just a couple of corrections to your next to last post.
“no economist would agree with your characterization of insurance as somehow distinct from other investments“
On the contrary. Although things like whole life are indeed partially investments, Social Security is more analogous to term life insurance and that is not generally considered an investment. In fact, I couldn’t find any economists or legitimate financial planners who called term insurance an investment.
“look at countries where socialized welfare is a greater percentage of spending, like europe. what do you get-sky high unemployment“
You mean like Britain where unemployment recently shot sharply upward, to 4.8 percent? I guess I just have a different definition of “sky high” than you.
Mojo-
Oh you poor thing. Take off your blinders and beware the green tornado. Or did you intentionally choose to pick just one example? Check out these sites and educate yourself:
http://www.tutor2u.net/economics/content/topics/europe/unemployment_introduction.htm
Slightly dated but still accurate:
http://www.oecd.org/document/35/0,2340,en_2649_201185_32617955_1_1_1_1,00.html
Hey even those readers not interested in this topic should still check out those links to learn what an UNBIASED source looks like!
Semantics don’t win arguments:
The problem is that the word “investment” has different meanings to different people. To an economist, insurance is an investment. Insurance is generally the giving of money to another now, in order to receive that money plus some return later. That is an investment. Take your car insurance for example. You pay an annual premium. Conditioned upon some event, you will get a big return on your premium. Multiply the liklihood of your getting in an accident by the value of your car (assuming its totaled) and depending on your premium you can figure out your “expected rate of return”. It might be zero or even negative, if the event never happens. Its no different from handing over money to a corporation by purchasing stock. There’s a little more involved, like the time value of money, but thats the basics of it. Life insurance is no different. Only instead of your car getting totaled, the event is your death. If it helps, look at the deal from the insurnace company’s side of it. Clearly they are hoping that the return on your premiums will be greater than what they end up paying out to you when you eventually die. Indeed, many insurance products let you “cash out”, at a some rate of return. Insurance is a financial product. I don’t know who you’ve been talking to Mojo, but once again you are incorrect.
Try:
http://dictionary.reference.com/search?q=insurance
Or google the phrase in, using quotes: “insurance is an investment”
and you’ll find UNBIASED links of your choosing.
http://www1.oecd.org/publications/e-book/8105101E.pdf
The UNBIASED source condemns the individual accounts (page 105). Howabout that? “Possibly the most intelligent and wise policy proposal from the Bush administration thus far.”
Bricklayer;
I chose just one example of low unemployment in a European country for the sake of brevity. Here are a few more:
Ireland – 4.3%
Austria – 4.6%
Denmark – 4.9%
Those stats are official (and current) EU figures.
The (consolidated) figures on the link you cite make the situation look bad (although I’d argue that single digit numbers aren’t a disaster). But that lumps the entire European Union into one number. Using this overall figure that combines many countries with many different economic and social variations as evidence that socialized welfare drives “sky-high unemployment” is as dishonest as lumping the Iraqi unemployment rates in with the US to claim that free markets drive sky-high unemployment.
BTW, from your link allegedly showing “sky-high unemployment” in the EU. “Some economists have questioned whether there is in fact a European unemployment problem at all.”
Your statements about insurance are even more misleading and, in some cases, simply false. Insurance is not “generally the giving of money to another now, in order to receive that money plus some return later.” Insurance works by paying people less than they pay on average but more than they pay in certain cases. To use your auto insurance example, the vast bulk of those covered never make claims even remotely equal to the amount of their premiums. Unlike investments, although your “rate of return” can be positive or negative in either case, only in the case of insurance is the expected rate of return negative. Insurance is a good thing because it pays more than you’ve invested to that point if you’re unlucky enough to have an accident before paying premiums equal to the damages. It’s more like playing the lottery than investing. You expect an average negative rate of return in anticipation that you might get a disproportionate positive return if you’re lucky (or unlucky in the case of insurance). (Yes, there are some long term insurance policies that actually pay out more than the total premiums on average, but they still pay much less than the premiums plus even a conservative return. In that sense they are an investment. But they’re a really, really, lousy investment unless you add the psychic benefit of being insured to the actual financial benefit of the “investment”.
As you suggested, I went to http://dictionary.reference.com/search?q=insurance. None of the many definitions on the page included the word invest or investment or anything like that. Instead they said things like, “Coverage by a contract binding a party to indemnify another against specified loss in return for premiums paid.” The word “invest” did appear as a link to investorwords.com. On that page insurance is defined as. “A promise of compensation for specific potential future losses in exchange for a periodic payment. Insurance is designed to protect the financial well-being of an individual, company or other entity in the case of unexpected loss.” Nothing at all about investment. Yes, insurance is a financial product. But that’s not the same as saying it is an investment.
If you’re going to call me wrong or “poor thing”, please at least read your own links even if you can’t be bothered to actually read anybody else’s posts.
Rick Labor-
Did you read what you linked to? It is one paragraph full of conclusions, but absolutely no explanation of how those conculsions were reached. It simply cites to some other source I’ve never heard of and have no idea how to track down. Further, I’m not even sure what it says is negative. It talks primarily about significant benefit cuts for workers born in 2012, who will retire some 60 years from now. That’s exactly what I want. The shortfall will be made up by their private investments. Are they talking about the net return, of private+social security? I can’t tell. Also, they talk about subsidies to workers opting out? What subsidies? That makes no sense on its face. Come on Rick, explain to me why its better if I can’t opt out. Giving me a cite and saying “because so-and-so says so” isn’t really argument. Well, in liberal circles maybe, but try a change of pace and explain the reasoning.
Mojo-
Stop embarassing yourself. The more intelligent readers have visited the links I originally gave and seen that there is indeed both theoretical grounds for, as well as empirical evidence of a positive relationship between entitlements offered and unemployment. They know you are intentionally being deceptive by intentionally ignoring germany, france, and canada with unemployment rates around 10%. Growing up in the era I have, its astounding to me that in those countries you can walk into a room with 100 random people and 10 will be unemployed. Ummm is it better to compare the US to those three, or the three very small countries that you chose? The three you chose combined have populations less than a single of the big 3 I name. Are you just trying to annoy me or are your blinders really so narrow?
I will grant you that in Mojo-land insurance is not an investment. But again, the intelligent readers interested in the argument googled the phrase “insurance is an investment” (including quotes) and realized that it is indeed considered as such in financial services marketing materials, economic analysis, and some lay usage. I’ve conceded that some laypeople don’t think of it as an investment for a variety of reasons. Most people think stocks and bonds. Fine. To an economist your decision to go to, or not go to college was an investment. My decision to go to law school would be an investment to an economist, even if I decide to never practice law. May I ask what the extent of your academic training in economics is? I am using the term in the academic sense within the field of economics. This argument is completely irrelevant to the core argument, and I know a cornered liberal likes to flail wildly like a chicken with its head cut off, but soon my patience will run out. Make a point please.
Bricklayer, WTF?
If Krugman says it, ad hominem attack, but not taking on the argument.
If your unbiased source says it, Q.E.D. (if you agree).
If your same unbiases source says it, it’s a load of unsupported crap (if you don’t agree).
If another source says it, but it’s a liberal think tank, ad hominem again (without examining the argument).
You say you know these things and the rest don’t understand, but all I see from you is repeats of the John Birchian pipe dreams. What next, the gold standard? Elucidate?
This debate, like most of this blog, has degenerated into nothing more than a forum for liberals to pat each other on the back, tell each other what they want to hear, and obtain juvenile pleasures in cretinous quips instead of the occasional civilized conceding of the other side’s valid point. It has become the blogosphere’s equivalent of Air America.
“If Krugman says it, ad hominem attack, but not taking on the argument.”
I do not think he deserves a pulitzer. I do not think any blatantly partisan economist deserves such praise, whether he shills for the republicans or democrats. As to whether or not he’s partisan, thats obviously a debate that will not be resolved within this forum.
“If your unbiased source says it, Q.E.D. (if you agree).”
Complete mischaracterization of my preference for unbiased sources. The credibility of the source is but one factor to consider when determining the credibility of the facts or opinions the source expresses.
“If your same unbiases source says it, it’s a load of unsupported crap (if you don’t agree).”
I assume you refer to the oecd report. Read it. I have little doubt the report accurately reports the conclusions of the underlying study. But it says nothing about the methodology or reasoning of the underlying study. In my opinion, that was a poor way to present the underlying study. Even though it was an unbiased source, nobody is perfect. It seems to me that much of what it says is ambigious. Sorry, but that’s how I read the 4 or 5 sentences that summarize such a complex subject. See my response to your assertion above.
“If another source says it, but it’s a liberal think tank, ad hominem again (without examining the argument).”
Again, in all fields that build knowledge upon prior findings, the potential bias of the source is something one takes into consideration. Unfortunately, this means that sometimes correct findings will be slower to gain acceptance because the original source cried wolf one time too many. I wouldn’t expect anyone on this blog to follow up on the validity of conclusions presented by say, Rush Limbaugh or William F. Buckley. To do so is just inconsiderate. That’s why I have urged so many involved in this thread to rely on unbiased sources. Its unfair to me to ask me to invest time and effort on sources that have historically shown bias. If the ideas of the source are good, then surely some unbiased, or at least less biased source can offer concurrence. Again, unbiased sources are not gospel, but are a more productive use of time.
“You say you know these things and the rest don’t understand, but all I see from you is repeats of the John Birchian pipe dreams. What next, the gold standard? Elucidate?”
I assume you are refering to the debate with the reader who, with apparently no academic training in economics, insisted that economic science does not view insurance as an investment. I apologize for getting sucked into that complete waste of time with him, perhaps you liberals should do a better job of policing yourselves to avoid adding more static to this already noisy debate.
Time for me to change the channel.