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APRIL 23, 2012 6:19PM

Facing the Social Security Music On a Time Urgent Basis

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For Megan, Eric, and Barry's future, which was the main point of this blog. Too bad some "liberal" people can't see past certain things, and obviously can't do math very well. Conservatives on this issue have their problems too, as to not getting that it's not Christian to throw entire groups of people under the bus, nor pay them unjustly while they did work. Possibly, that is in the nature of things, and America will repeat the paths of most Republics to date, and severely damage its future because of faction, although it is not too late to avoid either.

The demogogy on Social Security has now reached a coming acropper point, although we can still avoid the cliff, if not much longer, possibly for two years at my estimate before you would lock in a Greece-like result, save with much higher probability of violence, and the Trustees Report 2012 is the proof.

This would be option one: Auferre, trucidare, rapere, falsis nominibus imperium; atque, ubi solitudinem faciunt, pacem appellant.

"They make a waste, and call it peace" is how this statement of the Roman historian Tacitus is often shortened in translation, if the original with rapine and making deserts has a certain flavor too. They make a desert, and call it peace, what you will.

There's an audience for that, to solve our problems by making some wastes overseas, and calling it peace, by say essentially depopulating certain countries rich in natural resources, which would be great, except for one thing: people overseas aren't stupid enough to not get that drill, especially the East Asian creditors who understand the mathematics of finance at least as well as we do.

There is still definitely a case for using the one best investment our Federal Government has created, the U.S. Armed Forces, to such ends such as that can be done, in terms of applying all the "instruments of national power" to achieving national objectives, as in Afghanistan and Iraq, and possibly in some other rather obvious places, if and only if with the right creditor understandings, if it can't be done anymore as if we can pussyfoot around with it either, as to taking measures that could in some circumstances seem to not be particularly nice; neither are our enemies going to show mercy if we become Greece.

Finances are the sinews of war is the apt Roman aphorism.

Option two: Deal with Social Secuirty, if with Imperialism Lite. That's the better option. We have to do that Imperialism Lite to a point, just to end certain things well, like in Iraq and Afghanistan, and there is also opportunity if done correctly to lower net defense spending requirements over the long run, although there is of course no guarantee that some members of the international system will just let us do that, unless we make it rather obviously better than the alternatives.

As to reality, the Social Security Trust Fund Report is totally clear that the problem of benefits exceeding revenues can no longer be evaded, if it was still too optimistic in one sense as to the time urgency of the matter, for those who understand mathematics and finance, as is understood in East Asia, where our creditors are primarily.

nervos belli, pecuniam infinitam; money is never endless, but is anywhere and everywhere the sinews of war. If you look weak in that department, you will risk adversaries testing that weakness in ways that could ultimately prove fatal.

The report clearly states that by 2018, Social Security finances deteriorate afterwards monotonically towards disaster, which is actually the good news in the report. That's the good news, as it's not 2018 yet.

The bad news is that in intertemporal economics, the economics of time, which is what this is, when things unravel in the future, eventually as that future gets closer, they unravel in the present, since investors in debt want to evade the obvious haricut coming down the pike, along whatever sort of variational curve one wants to model that. Unless, before that happens, you have a plan that changes that mathematics over time, which is an argument for say a cut of .25 per cent across the board in Social Security benefits, right now, to demonstrate credibility that the problem will be solved by means other than printing more money, as that again tends inevitably to walk backwards in time to the present moment, if the exact moment is somewhat random in character; a butterfly can do it, so to speak.

Ask Greece.

If that sounds harsh as to say a quarter point across the board cut in Social Security benefits now, just consider what happens if the unsustainable future unravels into the present, which in an unsustainable situation must happen with probability one, and then who will have really been the enemy of the elderly and weak: the real enemy of the elderly and weak will have been those who pretended there was no problem, not those who spoke unpleasant truths.

The bad news in that report is that because Social Security revenues are now less than expenditures, which remains the case now if nothing changes forever, that Social Security will eat most of the Federal government's budget well before its supposed "Trust Fund" runs out.

If we want permanent national decline, this is the path you want to stay on, and just keep doing the same things, and hope that Russia and China don't decide to interfere by kicking us to make sure we are down and out forever.

The "Trust Fund" is put into quotes, because on a consolidated basis, the assets of the fund are liabilities to another part of the government. It has always been this simple as to proper accounting, if inexpedient to say.

That is the bad news.

The good news is that since we can't evade the problem any more, the political class will now have to deal with the problem, by altering planned expenditures downwards, cutting benefits of course, and altering planned revenues upwards, raising taxes of course, if one could moderate that somewhat by allowing for some form of limited privatization, probably mainly in the form of allowing private management of a limited amount of contributions on a defined benefit basis.

But if anyone tells you that there isn't a problem, and a serious problem, you know one or two things about them: they are either liars, and since the mathematics isn't hard, that by definition makes any economist who says there is no problem a liar, or, they don't have a clue what they are talking about.

It's real simple now, not a dress rehearsal; we adapt what Roosevelt created now, which means some benefit cuts and some tax increases eased in over time, possibly with some very limited privatization, if probably in the form of investment management contracts as to who can more efficiently bear risk, or, we take out Social Security as we know it for sure, and quite possibly the Republic in the process.




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The theoretical argument for buying Federal debt with trust fund dollars is that Federal expenditures contain an investment component. Spending isn't simply consumption. Infrastructure, an educated population, public health, research universities, etc are real investments, if done correctly.

And it makes more sense than throwing the money into the capital markets, which don't really need new capital.

The fact is that funding stupid wars is consumption of the worst kind.

Followed by spending in ways that impede progress, promoting rent seeking, etc.

So. Yea.
So too is national defense an investment in shaping the environment as much as you can, usually to prevent other people from doing that for you in a way adverse to your interests. Time will tell, but if we decline, I find it implausible given the historical record that we will find Russian and Chinese dictation to our tastes, which is the real world alternative to the current world order.
"Too bad some "liberal" people can't see past certain things, and obviously can't do math very well. Conservatives on this issue have their problems too"

Well, I certainly hope you have Paul Ryan and and his acolyte Mitt Romney at the head of your list. Yes, Social Security has problems, but none that can't be resolved relatively easily for the near future. Needs testing to prevent disgraceful scoundrels like John McCain from drawing Social Security and removing the cap on income for Medicare would be a great place to start.

The suggestion that the age for eligibility ought to be raised to 70 is ludicrous, now that employers routinely put employees aged 50-55 out to pasture. Indeed, the retirement age should be lowered to 55, which would also help alleviate the unemployment problem.

As for the long term, that will depend on whether "conservatives" come to their senses about obscene compensation and income equality. We can't provide a social safety net without the rich contributing a far larger percentage than the rest of us toward the maintenance of that social safety net.

Why should they do such a thing? First, because the benefit most -- all too obviously -- from this society and it's economic engine. Second, as the French Revolution and most every other revolution give account, in the end it is the rich who suffer most when the poor suffer much.

But, alas, instead we will likely continue to suffer under the delusion of "free-market capitalism" until the streets run red with blood -- including the blood of those who imagine themselves safe in their ivory towers on Wall Street and their gated waterfront communities. Fools who have no sense of history are indeed doomed to repeat it.

That rapscallion Napoleon once observed that "religion keeps the poor from murdering the rich", but when people lose their religion -- whether it be theocratic, aristocratic or autocratic -- heads will roll.
Unless, before that happens, you have a plan that changes that mathematics over time, which is an argument for say a cut of .25 per cent across the board in Social Security benefits, right now…

Qui possit campana in felem?
we have to come together and everyone sacrifice
Needs testing makes sense, and here actually is a link to see how one can do that.
Tom and Nik, I regret the little shot there at "liberals," although I have had "liberal" people in certain academic circles that shall remain nameless and placeless who were actually closed minded do me a lot of harm over the years, because they stopped thinking sometimes when they heard certain phrases, without listening to what's next. Conservatives often do the same thing, in which the media encourages this, which may well do a lot more harm.
When I do that game, I alter the caps, and alter the payouts, in a who can most easily pay sense, and it doesn't take very long, but, .25 per cent Frank demonstrates credibility, and it has to have some "loss' from everyone per Cathy's point.
There is no real loss, because if something is a fantasy about what is promised, namely current benefits as promised and taxes, then you didn't lose anything.
When I do that game, I alter the caps, and alter the payouts, in a who can most easily pay sense, and it doesn't take very long, but, .25 per cent Frank demonstrates credibility, and it has to have some "loss' from everyone per Cathy's point.

MY POINT was not about the value or logic of YOUR POINT, Don…it was about solutions that have almost no chance of coming into being.

My Latin quote was: Who will bell the cat?

Any alterations you propose have to be enacted by people who want to keep on being elected. There is no chance of them making significant alterations of the sort you are suggesting to Social Security (and I certainly would not want them to)…so the notion, has about as much applicability as any pie-in-the-sky “solution.”

As for your notion of "no real loss"...I would love to hear you explain that to Social Security recipients while running for office.

We need systemic change to many parts of our life philosophy, Don…and I do not see them happening without bloodshed on a monumental scale. The American Revolution; the French Revolution; the Russian Revolution…will all seem like small potatoes compared with what will happen for the needed systemic change to occur.