More on the great Ponzi scheme

Charles Krauthammer explains in detail why Social Security is indeed a Ponzi scheme, as we discussed here in an earlier post:  “In a Ponzi scheme, the people who invest early get their money out with dividends. But these dividends don’t come from any profitable or productive activity — they consist entirely of money paid in by later participants.  This cannot go on forever because at some point there just aren’t enough new investors to support the earlier entrants.” This is exactly what the pay-as-you-go funding of Social Security involves.

He goes on to say that the mandatory nature of Social Security makes it work longer than the Bernie Madoff schemes.  Then he gives some interesting statistics:

You can force young people into Social Security, but if there just aren’t enough young people in existence to support current beneficiaries, the system will collapse anyway.

When Social Security began making monthly distributions in 1940, there were 160 workers for every senior receiving benefits. In 1950, there were 16.5; today, three; in 20 years, there will be but two.

Now, the average senior receives in Social Security about a third of what the average worker makes. Applying that ratio retroactively, this means that in 1940, the average worker had to pay only 0.2 percent of his salary to sustain the older folks of his time; in 1950, 2 percent; today, 11 percent; in 20 years, 17 percent. This is a staggering sum, considering that it is in addition to all the other taxes he pays to sustain other functions of government, such as Medicare, whose costs are exploding.

The Treasury already steps in and borrows the money required to cover the gap between what workers pay into Social Security and what seniors take out. When young people were plentiful, Social Security produced a surplus. Starting now and for decades to come, it will add to the deficit, increasingly so as the population ages.

Demography is destiny.

via A Ponzi scheme that should be fixed – The Washington Post.

Taxes & government manipulation

The Washington Post has a big story about tax breaks.

As President Obama and congressional Republicans argue over how to rewrite the U.S. tax code, the debate has revolved around “loopholes” for corporate jets and ending “carve-outs” for well-heeled special interests. But if the goal is debt reduction, that’s not where the money is.

Broad tax breaks granted to millions of families at all income levels dwarf the corporate giveaways. Over the past two years, largely because of these popular benefits in the federal income tax code, the government has reached a rare milestone in tax collection — it has given away nearly as much as it takes in.

The number of tax breaks has nearly doubled since the last major tax overhaul 25 years ago, with lawmakers adding new benefits for children, college tuition, retirement savings and investment. At the same time, some long-standing breaks have exploded in value, such as the deduction for mortgage interest and the tax-free treatment of health-insurance premiums paid by employers.

All told, federal taxpayers last year received $1.08 trillion in credits, deductions and other perks while paying $1.09 trillion in income taxes, according to government estimates.

Only about 8 percent of those benefits went to corporations. (The write-off for corporate jets equals about .03 percent of the total.) The bulk went to private households, primarily upper-middle-class families that Obama has vowed to protect from new taxes.

“The big money is in the middle-class subsidies,” said Syracuse University economist Leonard Burman, former director of the nonpartisan Tax Policy Center. “You’re not going to balance the budget by eliminating ethanol credits. You have to go after things that really matter to a lot of people.”

via Ever-increasing tax breaks for U.S. families eclipse benefits for special interests – The Washington Post.

I reject the way these tax breaks are called “tax expenditures,” since that implies that all money is the government’s and that letting us keep part of it is government largesse.  Still, it is definitely true that the tax code is one way the government tries to control the economy and to manipulate citizens according to one policy or the other.

The government wants to encourage home ownership, so it makes mortgage interest tax deductible.  It wants us to use alternative energy, so it not only gives the ethanol industry a big break, it gives consumers write-offs when they buy energy-efficient products.   It wants us to buy health insurance, so there are tax incentives towards that end. And there are lots more.   Add in the corporate tax incentives, which are aimed at nudging the economy in one direction or the other, and tax policy plays a major role–along with government spending–in the great Keynesian project of state control over the free market.

So should conservatives be in favor of every tax break, just because it means someone is paying less taxes, even if it is an attempt by the government to control the economy?

Should we just have a flat tax or a range of flat taxes?  What do you think of   Republican presidential candidate Herman Cain’s 9-9-9 plan (9% income tax; 9% corporate tax; 9% sales tax)?  Would that wreak too much havoc in the housing market?  With churches and other non-profits that depend on tax-deductible donations?

 

 

Liberals and their language

George Will, picking up on some themes we have blogged about here, notes not only the ineffectualness of liberal solutions to our economic woes, but how they are running away from their own language:

In societies governed by persuasion, politics is mostly talk, so liberals’ impoverishment of their vocabulary matters. Having damaged liberalism’s reputation, they call themselves progressives. Having made the federal government’s pretensions absurd, they have resurrected a supposed synonym for the government, the “federal family.” Having made federal spending suspect, they advocate “investments” — for “job creation,” a euphemism for stimulus, another word they have made toxic.

Barack Obama, a pitilessly rhetorical president, continues to grab the nation by its lapels, demanding its attention, and is paying the price: The nation is no longer listening. This matters because ominous portents are multiplying. [Will goes ahead and cites some of them, including the bright idea of the administration’s economic advisors to purposefully induce inflation]  . . .

It is a wonder, this faith-based (and often campus-based) conviction that the government that brought us the ethanol program can be trusted to precisely execute wise policies that will render the world predictable and progressive. . . .

The economic policy the “federal family” should adopt can be expressed in five one-syllable words: Get. Out. Of. The. Way. Instead, Energy Secretary Steven Chu, whose department has become a venture capital firm for crony capitalism and costly flops at creating “green jobs,” praises the policy of essentially banishing the incandescent light bulb as “taking away a choice that continues to let people waste their own money.” Better to let the experts in his department and the rest of the federal family waste other people’s money.

 

via Our floundering ‘federal family’ – The Washington Post.

College football reshuffling

Well, my team, the Oklahoma Sooners, ranked #1, beat the highest rated team on their schedule, #5 Florida State, making me think they are for real.  OU has had a habit of losing games like this–early in the season, on the road, pre-mature hype–but this time, though it was a very hard-fought and exciting game, there was no choking, no appearance of disorganized panic when things got hard, just relentless football that ground out a 10 point victory.

But now I’ve heard that OU is seriously considering leaving what’s left of the Big 12 conference–along with Oklahoma State and maybe Texas, and I don’t know who all–for the Pac 12.   Oklahoma is nowhere near the Pacific ocean!  We are two time-zones away from the West Coast! A 7:00 p.m. road came will start at 9:00 p.m. in Oklahoma 5:00 p.m. in California!

I am opposed to doing violence to regional identity, language, and mathematics.   This is not the only conference shuffling in the works.  Texas Christian University, in roughly the same longitude as Oklahoma, is joining the Big East!  I don’t know the reasons for these shifts–I suppose the other conference members aren’t bringing in as much money for the pot as the members of these other conferences do–but I hate the loss of primordial rivalries (such as OU and Nebraska, which has already absconded to the Big Ten, now consisting of 12 members, with the Big 12 consisting of 10 members; the conferences should at least exchange names, until next year when the Big 12 may shrink to the Little 7).

I do see one potentially silver lining.  There are currently six Division-1 conferences in the BCS system.  The Big East is also bleeding members, with Syracuse and Pittsburgh considering joining the Atlantic Coast Conference.  If the Big 12 dissolves and the Pac 12 growing to unmanageable proportions, maybe it could split into two.   We could have four major conferences:  Perhaps a northeast, a southeast, a northwest, and a southwest, or if football wants to eliminate regions in favor of these artificial alliances, so be it.  But then with only four conferences, the winners could play each other.

Maybe all of this conference re-shuffling is the free market making possible a true national championship.

China as economic savior?

Europe is in  even worse economic shape than we are, with first Greece and now Italy being so indebted that they are threatening to pull down the whole Euro-zone house of cards.  And even Germany, still an economic powerhouse, may not have enough money or the will to bail everyone out.   Fareed Zakaria calls on the only country with the financial wherewithal to bail out Europe:  China

The time has come for China to adopt a broader concept of its interests and become a “responsible stakeholder” in the global system. The European crisis will quickly morph into a global one, possibly a second global recession. And a second recession would be worse because governments no longer have any monetary or fiscal tools. China would lose greatly in such a scenario because its consumers in Europe and America would stop spending.

Of course, China would have to get something in return for its generosity. This could be the spur to giving China a much larger say at the IMF. In fact, it might be necessary to make clear that Christine Lagarde would be the last non-Chinese head of the organization.

In a world awash in debt, power shifts to creditors. After World War I, European nations were battered by debts, and Germany was battered by reparation payments. The only country that could provide credit was the United States. For America, providing desperately needed cash to Europe was its entry into the councils of power, a process that ultimately brought a powerful new player inside the global tent. Today’s crisis is China’s opportunity to become a “responsible stakeholder.”

via How China can help Europe get out of debt – The Washington Post.

Why wouldn’t that work with us?  Maybe China would bail us out.  Of course, China would have to get something in return.  Maybe we could just sell ourselves to China.  Maybe Beijing would let us be a semi-autonomous region.

The former Soviet Union promised to bury us.  But that was in a time when nations dominated each other by war or the threat of war.  Now nations can substitute economic for military power and just buy up the countries they want.  If things get worse, don’t you think lots of Americans would be willing to give up their liberty and their sovereignty for some personal affluence?

Of course, you don’t have to sell out to China to make that kind of bargain.  Maybe the much-hailed “China model” of an authoritarian government that controls the economy while exploiting the free market will be the ideology that gets us out of our current economic malaise.  That platform would probably get a lot of votes.

Poverty rate soars to one in six

According to the latest census data, nearly one in six Americans are poor:

Amid a still struggling economy, more people in America fell below the poverty line last year, according to new census data released Tuesday.

The nation’s poverty rate rose to 15.1% in 2010, its highest level since 1993. In 2009, 14.3% of people in America were living in poverty.

“The results are not surprising given the economy,” said Paul Osterman, author of “Good Jobs America,” and a labor economist at MIT. “You would expect with so many people unemployed, the poverty rate would go up. It’s just another sign of what a difficult time this is for so many people.”

About 46.2 million people are now considered in poverty, 2.6 million more than last year.

The government defines the poverty line as income of $22,314 a year for a family of four and $11,139 for an individual. The Office of Management and Budget updates the poverty line each year to account for inflation.

via Poverty rate rises as incomes decline – Census – Sep. 13, 2011.