Social Security "Solvency" is IRRELEVANT !
Promoted by Brendan
On the issue of Social Security, both right and left are framing the debate and crafting their arguments in terms of a completely irrelevant fact: "solvency". Liberals/Democrats argue that Social Security will be solvent for a long time, so we shoudn't mess with it, either in terms of reducing projected spending (via reductions in benefits and/or eligibility) or raising dedicated revenues (e.g., raising the cap on income subject to Social Security FICA taxes). Conservatives/Republicans present an opposite conclusion regarding solvency and assert a need to change the system on that basis. And I just observe all this and pull my hair out that so much policy debate is based on such an absurd premise, that "solvency" has anything to do with these policy choices.
"Solvency" of Social Security is completely irrelevant to whether or not we should reduce its projected spending, increase its projected revenues via FICA taxes, both or neither. Our long-term fiscal imbalance (which very substantially threatens our future standard of living, the more so the longer we wait to mitigate it) is the gap between projected TOTAL expenses and TOTAL revenues, period. ANY reduction in ANY type of projected spending will reduce this imbalance, and ANY increase in ANY projected revenues will reduce this imbalance. Our policy choices -- how we choose to reduce this imbalance -- should be based on economics and on our values, but to consider "solvency" of a particular program a factor in our choice is nonsensical. "Solvency" merely reflects the fact that we currently have a particular level of projected revenues from a particular, dedicated tax going to that program. We carve out a portion of our revenues for that program, making it "solvent", but we can raise or lower the amount we devote to that program, as well as raise or lower the amount we spend on that program (once we get beyond the amount we are currently obligated to spend on it based on past taxes paid), so "solvency" is meaningless from the standpoint of our total budget and the imbalance of that budget.
Illustration #1: I plan to buy a large hamburger and a large smoothie at the Food Court at the mall. I think that the large hamburger will cost $7 and the large smoothie will cost $3. I put $7 in my left pocket to take out when I get to the hamburger stand and $3 in my right pocket for the smoothie. But I discover that a large hamburger is $8, a medium hamburger is $7, a large smoothie is $3, and a medium smoothie is $2. I can't afford the large hamburger and the large smoothie I wanted. I have to decide on moving down in size for either the hamburger or the smoothie. Now I ask you: Does it matter at all that I have $3 in my right pocket that can fully cover the cost of the smoothie as I planned -- i.e., that the smoothie is "solvent"?? Does that mean I should be less inclined to get the medium smoothie as opposed to the medium hamburger?? Of course not. The large smoothie is only "solvent" because I put the $3 dollars in that pocket. I could have put $2 in that pocket and $8 in the other, making the large hamburger "solvent", and I can take a dollar out of the smoothie pocket now and put it in the hamburger pocket, making the large hamburger "solvent" -- it's all one TOTAL amount of money to use for TOTAL expenses, right?
Illustration #2: Let's assume, arguendo, that you favor cutting Defense spending as part of the solution to our fiscal imbalance. Now let's assume that tomorrow a "Defense Tax" is put in effect, with revenues dedicated to the Defense budget, projected to fully provide for a continuation of the current level of spending, and let's assume that some other taxes that go into general funds are lowered such that all the changes end up revenue-neutral. Finally, let's assume that we can adjust the Defense Tax rate up or down as we wish, in accordance to any increases or decreases we choose to make in Defense spending. Now, all of a sudden, presto! -- Defense is "solvent". Would you now say "Well, it doesn't make sense to look at cutting Defense spending as part of the solution to our fiscal imbalance, because Defense is "solvent" ????? Hopefully you would NOT say that, because that would be nonsensical. And the same applies to SS (once we're past the amount we're already obligated to eventually spend on it due to past taxes paid).
The simple fact is that we could shift tax revenues that currently go to the Social Security "trust fund" (which add to the amount we are obligated to eventually spend on Social Security) to general funds instead (e.g., by reducing the Social Security FICA tax rate and increasing other tax rates in a revenue-neutral manner) and we could reduce Social Security benefits/eligibility and therefore projected spending accordingly. Revenues would remain unchanged and spending would be reduced, thus reducing our long-term fiscal imbalance. Or we could decide NOT to do that and to cut more projected spending elsewhere, raise taxes more than we otherwise would, or both. But our decision should be based on the same thing other economic policy choices should be based on: economics and our values. Not on the nonsensical notion that the "solvency" of a particular program, viewed in isolation, because of some current funding structure we've established with dedicated tax revenue, is somehow relevant.
Whew! Glad to get that off my chest.
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Comments :
Well, sure, in any budget you can always
reallocate funds to match your current priorities (taking into account money that is already committed). But when you're deciding whether to restructure something like SS I think it certainly makes sense to examine it in isolation to see whether the projected income with current policies can match the projected expenses with current policies. Viewing the whole thing as one account, with money free to slosh from here to there, is part of what got us into the current situation where SS is essentially funded by IOU.
Regardless, I do take your point that we make fiscal policy decisions based on values. I agree that both parties try to frame the SS debate in such a way as to convince us that what they think we should want is, in fact, practically required by the current economics of the program. It's odd when you put it like that -- why don't Republicans just try to sell the ideology of personal accounts? Or Democrats the ideology of a safety-net (plus a little extra) retirement?
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
Technically
I don't want to parse semantics here, but SS technically isn't a retirement program; it's old age insurance. People treat it as a retirement program which is why the traction on the right is with personal accounts. It's also a pay-as-you-go program: you don't "deserve" SS benefits when you become 65 any more than you "deserve" the fruits from any other government program.
I never broke the law; I am the law! --
George W. BushJudge DreddI'm listening to...
Noted
The last bit is particularly important.
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
ON deserving the 'fruits'
I don't quite get this concept. Where do you draw a line on who does and does not deserve the 'fruits' of living in a country that has a government, that provides for a civil society, by offering a safety net for it's citizens.
Why undo something that is actually working?
Many 'programs' can be put under the umbrella of safety net, police, national defense, infrastructure, education. Without safety nets a society fails the smell test, of being civil.
I'm only half stupid
We're not disagreeing
People mistakenly believe that since they pay into SS, they deserve benefits down the line. Since SS is pay-as-you-go, it is the same as any other government program. Paying federal taxes now doesn't mean you are automatically entitled to the benefits of any federal programs later on.
I think SS is a good concept. It's unconstitutional based on my reading, but as I learned in government class, for practical purposes the Constitution says what the Supreme Court says it says. I'd be for raising the contribution limit and adding a very high income means test if needed.
I never broke the law; I am the law! --
George W. BushJudge DreddI'm listening to...
I have trouble coping with this way of thinking
By the same logic, does that mean that a govt program, like the VA, can just promise you medical care, but doesn't have to deliver, just because they suddenly decided oh well no benefits for you.
This is WHY I believe in regulations and laws. If you pay for social security you should get it by law. period. Restoring faith in govt through better laws.
IF you think the fed govt run system is incompetent think again. Ask a recepient of SS if the govt is efficient. The checks are ALWAYS in the mail on time because good govt programs work.
I'm only half stupid
Not quite
I'm not sure how the VA is funded; I assume from the general fund. If part of signing up for the military includes a government promise, then yes, they do have to deliver. If not, then they don't.
Don't get me wrong -- I really hope the VA lots of other such programs are kept fully funded and in place, but the government has no legal obligation to keep them in place unless they stipulated otherwise.
If you want to switch SS to being a program you're entitled to because you paid FICA, we can talk, but as of now you're not entitled to anything. I'm talking about legal obligations here, not moral ones.
I never broke the law; I am the law! --
George W. BushJudge DreddI'm listening to...
That's true stinerman....
I mean, what was the life-expectancy of SS when it was started? Somebody brought up 63 in my group last night. I wasn't sure if that was true, but it's not far off. So I look at it, and I say, "Likely, I'll be eligible for SS."
But I don't think I should be. It's a terrible investment and it's not necessary that I have it. SS as it existed once, was perversly means based in that these people were on death's door step. Let's get back to a means based program where it's truely a safety net instead of a quazi-retirement plan, and give self-sufficient retirees more tools to save.
Right
In Supercapitalism Reich stated about 67 as the life expectancy.
To rectify this we can raise the age at which you receive full benefits. I'm not so keen on that idea because I haven't seen too much evidence that "quality of life expectancy" isn't much better than before. We do a very good job of keeping old people alive, but modern medicine hasn't done too great a job of keeping old people active.
To further illustrate, lets use 65 and 85 as the life expectancy then and now, respectively. 65 is about 75% of 85. 75% of 65 is about 50. Do today's 65 year-olds have the same lifestyle as a 50 year old back then? I don't believe so. Therefore, I don't think raising the retirement age is a good idea. Not everyone can be greeters at Wal-Mart.
I never broke the law; I am the law! --
George W. BushJudge DreddI'm listening to...
Not my area of expertise.....
I haven't seen it addressed.
It's a small problem now, maybe a big problem in the future. With all of the nano technologies, we could be set to increase life-expectancy by decades.
(Now me, I'm talking out of my ass here, but that's what my doctor friend tells me.)
Not mine either
It was actually a wild guess based on non-scientific observation. :-)
I never broke the law; I am the law! --
George W. BushJudge DreddI'm listening to...
The future will bring what it brings
I actually know someone doing research on nano-tech applied to medicine and they are apparently still a long ways (several breakthroughs) away from anything remotely usefull. Nano-devices are apparently swept up by the liver/kindeys or downright toxic.
Short version, we aren't to the point where we should be planning social security benefits based on nano-technology
First, thanks for promoting
First, thanks for promoting this diary.
Well, sure, in any budget you can always reallocate funds to match your current priorities (taking into account money that is already committed). But when you're deciding whether to restructure something like SS I think it certainly makes sense to examine it in isolation to see whether the projected income with current policies can match the projected expenses with current policies.
Yes on the first, but not really on the second, as the first indicates. It's like my illustration with the hamburger, the smoothie, and different amounts of money in each pocket. Sure, the "Large Smoothie Program" is "solvent" -- based on my putting-cash-in-my-right-pocket policy, the large smoothie revenue ($3) equalled the large smoothie expense ($3). But that "solvency" has no sensible bearing on whether I choose to downgrade to the smaller smoothie vs. the smaller hamburger to resolve my fiscal imbalance.
Well, my starting point
is that I just don't think people will accept cuts in SS when it becomes apparent that the entire budget is in the red. So from that perspective it makes sense to try to balance SS income/expenses and then isolate it from the rest of the budget.
To use your analogy, if you promised your date that you'd definitely buy the large smoothie to share, then you better be prepared to downgrade to the smaller hamburger. Hopefully you budgeted reasonably accurately when you made that promise, but either way your date is gonna get that smoothie.
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
Depends on how the date's
Depends on how the date's going up to that point, and what I think the ROI on that smoothie will be ; )
As for the politics of it all, including whatever misperceptions and faulty analytical view the public may have, I'm not sure how it could play out and how to play the politics. I was just pointing out -- in terms of what actually makes sense -- that the focus on solvency as the major factor to consider in deciding what to do, if anything, with SS as we seek to resolve our fiscal imbalance, is nonsensical in terms of rational policy decision-making. Solvency isn't even relevant, let alone an important consideration.
Re Social Security
First, Al Gore is right -- put SS in a lockbox.
Second, Borrowings from SS should be paid. If they need to raise general taxes then that is okay. But it should be paid.
If it does not get paid---it is then the most regressive tax on low to middle income workers. Employee contribution is like a insurance-- it is their money. It is not to be use for general purpose.
Third, Perhaps, we need to make FICA more progressive or no income bracket limits anymore ( income more that $ 97,000 shd be tax but with limits on benefits for the top earners --meaning if you are a CEO with $400M/year salary--and pay FICA up to your whole income --your benefits would be limited to lets say $4,000/month).
Fourth, we need to open immigration to make demographics younger and increase the working people to retired people ratio.
If we fiddle with the cap
or top rates, aren't we just turning it into a welfare program? It changes the idea from you paying yourself to the rich paying the poor.
I worry that makes the whole thing more vulnerable to ideologically-motivated attacks.
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
No because they are using it to fund General budget
SS now has a surplus. The surplus is being used to cover the deficits.
Thus if SS money is being used for General budget purposes--then it should have a progressive tax structure. It is not going to be welfare because people are still contributing to it.
If the politicians want really to make it a pure insurance --then it should be on a lockbox and they cannot use it to cover deficits.
Social Security is already a welfare program
Social Security *already* (on average) pays more in benefits to the poor than they paid in in payroll taxes, and pays out fewer benefits to the rich than they paid in in payroll taxes.
Here
is the CBO study.
When people talk about raising/eliminating the payroll cap they are being somewhat misleading. Raising or eliminating the cap by itself doesn't really fix anything, because your benefits are based on your income-subject-to-the-cap -- a lot of the new tax revenues would simply be used up paying out gigantic checks to rich retirees. So really the people saying this generally mean that they want to raise/eliminate the cap *for tax purposes only*, and then change the benefit formula so that when you pay in money beyond the *current* cap, you don't earn any extra benefits.
A very big difference, and on net, a massive tax hike for the rich. (Which the rich will probably evade, for the most part, by shifting individual income over to corporate income, so it won't really even have the desired effect. This would especially be the case if you passed something like the Rangel tax plan on top of this; Rangel proposes cutting corporate tax rates and raising individual tax rates, so rich people would shift a lot of income to C-corporations in response to his plan.)
Massive tax hike for the rich
Good. It's way overdue :)
And we are also overdue for universal health insurance. That would be sure to ease the burden on business.
I'm only half stupid
Understand just how high tax rates would be
Let's suppose that we were to...
- let the Bush tax cuts expire, at least for top earners (top rate goes to 39.6%)
- pass something like the Rangel tax plan, repealing AMT and hiking taxes on top earners (add another 4.6%, top rate goes to 44.2%)
- eliminate the Social Security wage cap; employer plus employee payroll tax rate is 15.3%
- pass some sort of national universal health care plan; realistically, this would involve a further tax hike beyond all of the above, so let's say the payroll tax goes up to 20% (10% employer, 10% employee)
So now for a top earner, even in a state with no income tax, for every additional $1.10 earned, $1 would show up on their payroll (10% employer payroll tax), and they'd pay 10 cents in additional payroll tax and 44.2 cents in additional income tax, leaving a mere 45.8 cents after the tax man's bite.
Say they live in California? Tack on 10.3*(1-.442) = 5.7 more cents, leaving just 40.1 cents of after-tax income.
That's a 65% overall marginal tax rate. That's almost as bad as in the pre-Reagan era -- and back then our tax code had a lot more deductions, so you didn't pay that 70% top rate on nearly as much income.
Obviously the immediate effect would be a massive increase in tax sheltering activity. Rich people would scour the tax code for whatever loopholes they could find. Lots of personal income would be shifted onto corporations' books (the exact opposite of what happened after the 1986 tax reforms).
What's worse, our tax rates would go from being fairly competitive on the international arena to being grossly uncompetitive. Our tax rates on the wealthy would be significantly higher than those of many other developed nations. The result would be capital flight.
It's sad that while other many other supposedly "socialist" nations are undertaking capitalist reforms like corporate tax cuts, flat taxes, selling off state-owned industries, work rules that are less favorable to unions, and privatized pension systems, we're moving in the opposite direction -- towards higher taxes and bigger government.
It's very bizarre that the left in America wants to move us towards the European economic model -- the same model that Europe itself is beginning to desert.
Minor corrections
It is my understanding that the Rangel "surtax" applies to AGI, prior to any itemized deductions. So you cannot write off state income tax against it. Further, if the Bush tax cuts go away, Pease comes back too (the phaseout of itemized deductions), which means the tax rate for top earners is effectively a bit higher than 39.6% -- you lose 3 cents of itemized deductions for each dollar of earnings above a certain level.
So I think the math works out as follows.
Original earnings: +$1.10
Payroll tax: -20 cents
Rangel surtax: -4.6 cents
CA state income tax: -10.3 cents
Federal income tax: -39.6 cents
Federal itemized deductions for CA state income tax: +.396*(10.3 - 3) = +2.9 cents
End result is that you get to keep 38.4 cents.
(And then just imagine if Democrats in California had gotten their way and managed to raise the state tax to 12%... fortunately that ballot measure was defeated, but the desire for tax hikes on the left is just inexhaustible)
Many/most on both right and
Many/most on both right and left are in denial. While everyone who is informed on our long-term fiscal outlook acknowledges that we need to change course, many/most on the left think we can simply raise taxes as much as we need to to reduce our projected long-term fiscal imblance, without any regard to the adverse economic impact of higher taxes, and many/most on the right think we can just cut spending as much as we need to, without serious consideration for how deeply we'd have to cut, particularly in Medicare and/or Social Security, to do so, and what the effect would be on the lives of many seniors, and if causing that degree of effect (rather than ANY increase in taxes) is consistent with their own values.
I think if everyone really thought it through, even given the differences that exist in terms of economic assumptions and philosophy, the vast majority of Americans would conclude that the best solution is some combination of tax increases and spending cuts.
Thanks, hadn't seen those numbers before
It's not that progressive for retired workers (Figure 2) but point taken.
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
SS, formalities, and politics
B Rational, you are absolutely right in stating that the financial isolation of SS is basically a formality (but I think that there may be special legal procedures for modifying SS), and such formalities would be detrimental, if the USA were a solitary rational actor.
But the USA isn't a rational actor -- it's a political system. As I understand the situation, the formality was implemented specifically in order to hinder alterations to the system, thereby cementing the political comprimise that established the system (and subsequent modifications). By focusing on the "solvency" of the SS system, politicians are arguing over whether the current compromise is sustainable.
This formal separation of SS from the rest of the budget plays on all types of mental and social dynamics: it simplifies decision making by separating different issues, it legitimizes the regressive taxes that pay for SS, it legitimizes the payouts by making them a function of contributions. I think that there are arguments to be made for eliminating this formal separation, but we have to recognize that doing so will fundamentally change how Americans think of Social Security.
In my expert opinion, you should do what I tell you to do.
Thanks for your comment.
Thanks for your comment. There may be some benefit to maintaining the current structure of a dedicated tax, etc. There may even be some benefit to people incorrectly thinking that "solvency" is somehow relevant to our policy choices, perhaps if it somehow serves as a good-enough surrogate for something more valid. My point is just that it is really incredibly silly that there is such a pervasive misconception, on BOTH sides (those who want to cut benefits/eligibility and those who don't), that SS "solvency" is relevant to our policy choices -- indeed, many insist, should be the KEY consideration or a determining factor, when solvency is essentially just a function of how much of our money we put in one pocket vs. the other pocket, and how much we choose to spend on SS.
Solvency is relevent, but not the whole story
Solvency is not the main reason we should not mess with SS, but it is relevent.
You are concerned with our long-term fiscal imbalance, but fiscal imbalance is just another term for lack of solvency. Solvency is the entire issue for the OVERALL budget.
I agree changes in budgets and spending policies will be needed. A proposals for change is not good merely because it leads to solvency, but it is a bad if it does not lead to solvency.
No, SS "solvency" per se is
No, SS "solvency" per se is irrelevant. The only relevance (to our decision of whether or not to reducd projected SS spending) of projected SS revenues and spending is that they are part of OVERALL revenues and spending.
And don't get semantically confused over SS "solvency" vs. "overall fiscal imbalance". My point is simple. The balance of SS in isolation is irrelevant to this policy decision. It is merely part of the whole.
Many liberals argue nonsensically that because, according to their (debatable) projections, SS will be "solvent" (or very nearly so) under current policies, that SS is unrelated to our overall fiscal imbalance, that SS spending is not contributing to this overall fiscal imbalance, and that reducing projected SS spending should, ON THAT BASIS ALONE, be taken off the table as we consider options for reducing our overall long-term fiscal imbalance. All of the above is utter NONSENSE, not as a matter of opinion, but as a matter of very basic algebra.
It is very important to correct this fundamental conceptual error, because the implication is, as I've explained, that we shouldn't even CONSIDER reducing projected SS spending as we seek to reduce our long-term fiscal imbalance. There are arguments to be made (and discussed/debated) for opposing reductions in projected SS spending, but defying basic algebra and logic have no place in that debate.
That's my point.
Focus
I said that a proposal that leaves SS insolvent is a bad proposal. Instead of responding, you addressed something I did not say.
My intention in the
My intention in the following is not to be snarky or unfriendly, just to be direct and clear.
Focusing is what you should be doing here, Arne. Let’s review:
First, you asserted (in apparent disagreement with my diary) that “solvency is relevant”, by which I assume you were referring to SS solvency, since that was what I was saying was, in itself, irrelevant to the decision of whether or not to reduce projected SS spending. So I explained once again why SS “solvency” per se is indeed irrelevant to that policy decision.
In your comment, you provided this quote of me: “Liberals/Democrats argue that Social Security will be solvent for a long time, so we shoudn't mess with it”, and you responded with some semantical confusion (or at best an empty statement), then with “A proposals for change is not good merely because it leads to solvency, but it is a bad if it does not lead to solvency.”
But your response did not fit the statement to which you were responding. That quotation of me, and the point of which it was part in my diary (post), means that some liberals are saying “SS is fully solvent, so there’s no reason to even consider reducing projected SS spending as part of our solution to the long-term fiscal imbalance”. My point was that such an argument is nonsensical, as I’ve explained. My point assumes, for the sake of argument, that those folks are correct that under current policies SS will be fully solvent (or very close to it) forever. But I’m saying their argument based on that premise is nonsensical. Your response seems to fit some other point, not the one you quoted or anything I said in my diary (post). If I’m missing the connection, please explain.
Again, I’m saying that:
- Some liberals contend that because, per their projections, SS will be fully “solvent” (or very close to it) forever, and that ON THAT BASIS there is no reason to even consider reducing projected SS spending as part of our effort to reduce our long-term fiscal imbalance.
- The above is nonsense, as a matter of basic algebra. SS “solvency” in isolation is not a rational reason to oppose even considering reductions in projected SS spending, as if SS “solvency” meant that SS spending bore no relation to the overall fiscal imbalance. SS is just part of the whole. Projected SS revenues and projected SS spending are only relevant to that decision in that they are part of projected overall revenues and overall spending, not based on their magnitudes relative to each other (i.e. SS “solvency”)
That’s the lack of “relevancy” that I’m talking about. If you disagree with THAT, please explain.
are we talking at cross purposes?
I believe you just said that your argument refers only to those who say solvency is a sufficient reason for a hands-off policy - no other reason needed.
I have said there are multiple reasons for the policy I suggest.
It sounds like our subjects have a null intersection. Am I right?
They are separate points.
They are separate points.
If you realize that my point is valid (and it is, not as a matter of opinion, but as a matter of basic algebra), please say so.
Saying that there are multiple reasons for the policy you suggest is not a refutation of my point; it doesn't address my point at all. As you just wrote, I'm that it is nonsensical for anyone to argue that SS "solvency" is (or would be) sufficient reason not to reduce projected SS spending in our efforts to reduce the projected overall fiscal imbalance. I'm also saying that not only is SS "solvency" not SUFFICIENT reason, it's not a rational reason AT ALL for such a position.
So, since the argument of my post is that SS "solvency" per se is irrelevant to our decision of whether or not to reduce projected SS spending, and your initial comment contended that it WAS relevant, let me ask you:
Do you acknowledge that my point is valid: that even if SS would be fully "solvent" forever under current policies:
- that does NOT mean that SS is unrelated to overall deficits.
- We COULD reduce our OVERALL long-term fiscal imbalance by reducing projected SS spending.
- Doing so would NOT require defaulting on SS Trust Fund bonds.
Yes or no?
So you agree?
When you say "they are separate points" you are agreeing with my statment. My point, that solvency is relevant within the context a set of criteria, and your point, that solvency is not relevant if it is the only criterion considered, are not in conflict?
Yes, they are separate.
Reading just the title of your post, or reading many of the comments in reply to your post, my reply would be refutation, but since I now observe that we are placing mutually excusive qualifiers on aur statements, you are correct - my reply did not relate to your post.
A matter of word choice
It seems to me that this is a binary situation, 'is' or 'is not'. So the only distinction between not sufficient and not rational, is how annoyed someone would be by your rhetoric.
A minor correction
You mean 'since the argument of my post is that SS "solvency" taken by itself is irrelevant to our decision of whether or not to reduce projected SS spending'
Actually by definition, solvency means that SS contributes zero to imbalance, but I don't think you really meant in the absence of all policy changes. Shifting payroll tax from SS to Medicare is a policy change, adding means testing is a policy change. Either of those changes could be made such that you could have solvency before the change, solvency after the change, and make a change that reduced combined deficits.
Arne, I'm going to leave
Arne,
I'm going to leave your semantical (etc.) comments aside. What you're saying is not that clear to me, and I really don't want to spend more time discussing the discussion rather than discussing the topic.
So let me try again to get right down to it.
Some people contend the following, and I say it is not only invalid but utterly nonsensical.
(1) Because, per their projections, under current policies SS will be fully (or nearly fully) "solvent" forever, THEY SAY that that means that SS is totally unrelated to our projected overall fiscal imbalance, and therefore we should not consider reducing projected SS spending as part of our efforts to reduce our long-term fiscal imbalance. THEIR argument goes that because (per their projections) there is no projected Social Security deficit (it is balanced or perpetually in surplus), it is wrong to say that projected Social Security SPENDING contributes to our projected OVERALL deficits, and wrong to say that reducing projected Social Security spending could reduce our projected OVERALL deficits.
(2) Some also contend that if SS is already fully, infinitely "solvent" under current policies, then the only way we could reduce projected SS spending would be to default on Trust Fund bonds.
The arguments described above are UTTERLY NONSENSICAL. Can I get a straight "yes" from you that those arguments are clearly and completely invalid?
SS spending and SS revenues are part of OVERALL spending and OVERALL revenues. If we lower projected SS spending and do not alter the other variables, obviously we lower projected OVERALL deficits. If this causes excessively large SS surpluses, we can just lower SS FICA taxation, offset that revenue reduction with increases in other taxes, and the result is reduced projected overall spending, unchanged projected overall revenues, and therefore lower projected overall deficits. Simple algebra.
And the Trust Fund balance is only about $2 trillion. Projected SS spending over the next several decades is way, way, way more than that. So we could even eliminate most of projected SS spending without defaulting on the Trust Fund bonds. (not saying we should, just that we could).
Here's where I think some people get hung up and confused. They know that SS has a dedicated tax, and that SS revenues must ultimately be spent on SS benefits. But they erroneously think that means that FUTURE tax revenues are not ultimately fungible, so (they think) if current policies provide full, infinite "solvency" for SS, since SS revenues can't be spent for any other purpose anyway, SS spending has nothing to do with OVERALL deficits. What they overlook is the simple fact that we can LOWER SS FICA tax rates or the level of income to which it is applied, and if we want, we can offset the revenue lost with increased revenue from increases of other taxes, thereby lowering OVERALL deficits. Hence, even assuming (arguendo) that current SS tax policies provide full, infinite SS "solvency", it is still nonsensical to say that SS spending is unrelated to OVERALL deficits, or that we couldn't reduce OVERALL deficits by reducing SS spending. Since we can lower SS taxation and increase other taxes as I've described, ultimately the dollars in our overall pool of FUTURE tax revenues are indeed fungible via such tax rate changes, even though revenue ALREADY collected via SS FICA are not fungible (they must be ultimately spent on SS benefits).
Your bullet points
Hopefully some of the above comments by me don't really require further discussion.
I think your clause about SS solvency overconstrains your bullet points.
- solvent or not, SS is not unrelated to combined deficits.
- solvent or not, reducing SS could be part of a change that would reduce combined imbalance.
- solvent or not, reducing SS benefits is not equivalent to defaulting on TF bonds.
And not to ignore your second paragraph. Your point that solvency is not relevant if taken in isolation is valid. The problem is that your point is trivial and responds to an argument that is not being made by anyone I have read at length.
My 2008-05-29 00:59 comment
My 2008-05-29 00:59 comment crossed paths with this one (2008-05-29 00:29) from you.
Thank you for those straight answers. I'll comment further in a moment.
Where you are wrong is when
Where you are wrong is when you say that my "point is trivial and responds to an argument that is not being made by anyone..." (you referred to anyone you "have read at length", but I'm assuming that includes bloggers and commenters on blogs that you and I have commented on -- e.g., Bruce Webb, Dean Baker, Mark Thoma, and several other commenters.)
Let me give you just the most recent example, this from Bruce Webb, who has probably read my explanations on this point more times and in more forms than anyone else.
Today, in asserting that I have implicitly claimed that SS, under current policies, is not fully solvent, Bruce Webb wrote in a comment to me on Angry Bear:
"Brooks your policy argument for means testing Social Security does build in ideas of insolvency because outside that frame makes no fiscal sense. If the system as designed can pay out full insurance benefits why would we means test it?"
You see? Bruce is showing his belief that if SS will be fully "solvent" forever under current policies, there would be no reason (no benefit) to reduce projected SS spending, which means he doesn't see that reducing projected SS spending could reduce our long-term fiscal imbalance (i.e., overall deficits). In fact, you may have seen that he devoted an entire post to a silly, misleading argument that cutting projected SS spending would WORSEN our overall long-term fiscal imbalance. See this link
.
(Bruce ignores the obvious solution: lowering SS FICA taxation and offsetting that reduction with increases in other taxes).
Believe me, Arne, I have made my point as a CORRECTION to a PERVASIVE fundamental conceptual error that I saw many people making -- and basing their positions on -- particularly on liberal econ blogs (Thoma, Baker, DeLong). I didn't just decide one day to make the point.
Just to add one more note to
Just to add one more note to my last paragraph:
And I did not anticipate -- even on partisan blogs -- the extreme level (and near universality) of fierce resistance to this conceptual/analytical correction (again, really just a matter of simple algebra), along with the level of hostility and paranoia, that I have encountered on those liberal econ blogs in response to my making the point. I had had a similar experience on RedState when I tried to convince those partisans (on the other "side") that they were wrong in saying that the Bush tax cuts had caused increased revenues, but my point re: SS isn't even a matter of opinion or complex/controversial analytical methodology -- it's just very simple algebra. Yet for pointing this out I was branded a "troll" who was being "dishonest" and "disingenuous" and hiding the supposed fact that I was part of a right wing conpiracy to destroy Social Security. Yeeesh!
Resistance is hardly surprising
You tell people they are irrational and you are surprised they resist?
You tell people they are saying something that they do not think they are saying and you are surprised they resist?
These are atually rhetorical questions, but I won't be surprised if you respond.
First of all, I'm speaking
First of all, I'm speaking to YOU about the arguments of OTHERS, which I'm calling irrational.
Second, even telling OTHERS that an argument of theirs is irrational, while quite possibly undiplomatic, would only prompt knee-jerk resistance among people who lack maturity. If someone told me an argument of mine was irrational, my first reaction would be to consider the validity of that person's claim, not to reflexively resist. If I was unsure, I might ask further questions. And if I realized at some point that he was correct, I'd admit it and thank him for correcting me. That's the mature approach. That said, many people obviously lack this type of maturity.
By the way, Arne, I'm
By the way, Arne, I'm detecting a bit of negative tone in that comment (Let me know if I'm misperceiving). I think to this point we've been having a good discussion in both tone and content, and I hope we'll proceed similarly.
Your interpretation
I do not see that what you quoted of Bruce reasonably leads to your interpretation that he cannot understand your point. Any comments from Bruce should be taken in the context of the entire discussion. He has agreed that your math is correct. He has provided many reasons beyond solvency for his proposal to do nothing now.
The actual answer to Bruce's question is because you want to reduce payroll taxes for SS, which results in SS being insolvent - a problem you would then solve with means testing. As Bruce notes, solvency does come into play in the scenario you described.
You are misunderstanding.
You are misunderstanding. The context* was that I had said that I have never asserted a lack of SS "solvency". Bruce responded by arguing that my advocacy of means testing Social Security NECESSARILY ASSUMES a lack of SS "solvency", because, his argument goes, without that assumption, there would be no reason to favor means testing (i.e., no benefit to such a policy). Do you understand now?
Even if I had never discussed my conceptual point with Bruce, this argument from Bruce would reveal that he does not get it. The fact that he has seen my conceptual point many times in many forms makes it just amazing that he still doesn't get it.
* Specifically, Bruce's comment was in response to this statement by me:
I've never asserted that there is any SS "crisis". I've never even asserted that there is an SS "shortfall". There may be, but that's not something I've ever asserted. In fact, the points I've made regarding Social Security GRANT, just for the sake of argument, that those who contend that SS will be fully solvent (or very close to it) forever are correct, because my point is that even if that is the case, the implication many draw from such a premise is not only invalid but nonsensical -- that implication being that "solvency" means that SS has nothing to do with our overall long-term fiscal imbalance and that reducing projected SS spending could not be one way to reduce our long-term fiscal imbalance (as I've explained, it obviously could, with, if necessary, shifts in taxation from SS FICA to other taxes). The above is not a matter of opinion, but of logic and basic algebra.
Bruce was the one who was right on that one
There is no reason for means testing unless the program is not solvent. That would just cause unneeded surplus.
1. There is a fiscal imbalance in the future.
2. It cannot be solved just by cutting Medicare expenses. (Some people could disagree.)
3. Ergo, we need to raise taxes for Medicare.
4. A source of taxes for Medicare would be to transfer SS taxes.
5. Transferring taxes from SS to Medicare would reduce SS taxes.
6. Reducing SS taxes would make SS insolvent. (Some people say it already is.)
7. If SS is involvent it needs to reduce its costs. (This would not stand by itself except we just reduced taxes.)
8. One way of reducing costs is by invoking means testing.
9. Means testing is not inconsistant with the insurance nature of SS. (Room for lots of disagreement, but not the critical point.)
You cannot get to 8 without going through 6, so Bruce is actually correct when he says that means testing assumes insolvency.
Arne, no offense intended,
Arne, no offense intended, but you are really confusing yourself. Listen, please, because it's really quite simple.
Bruce was implying that if, under current policies, SS will be fully "solvent" forever, then there is no (fiscal) benefit to be gained from means testing (or from any reduction in projected SS spending for that matter, since the logic is the same regardless of the particular form of that reduction in projected SS spending). He is obviously incorrect. Even assuming that "solvency", any reduction in projected SS spending would reduce our overall long-term fiscal imbalance, and if that would mean undesirably large SS surpluses, the obvious solution would be to lower SS FICA taxation to reduce or eliminate those projected SS surpluses.
Do you see that?
And Arne, Bruce knows
And Arne, Bruce knows exactly that that is my point. He has seen it a zillion times. So for him to say that my favoring means testing MUST mean that I assume a lack of SS "solvency" shows that he just doesn't get it (or is pretending not to get it).
Even assuming that
Brooks, no offense intended, but you are just wrong.
If A>=B then any reduction in B ensure that A-B>0.
Arne, a while back I tried
Arne, a while back I tried to get you to understand my point. We also had an email exchange in which I tried again. This has been my third try, and, while at least you seem to get my fundamental conceptual point this time, you are simply not getting my point regarding the implication of what Bruce said and why that implication is ridiculous and downright silly for him to make (or disingenuous, but in this case I think he is just showing his obtuseness). I don't think I can explain any better than I already have, and the chances of you getting it if I were to keep trying don't seem very great, so I will cease trying. If you wish to re-read my explanations, or share and discuss with others, perhaps you will at some point understand what I'm saying and why it's valid. I realize the above is probably insulting, but it's not my desire or intention to offend you; I'm just being frank.
I missed this
I said:
To which you respond:
I have boiled things down to an irrefutable mathmatical statement. I cannot be insulted by your inability to grasp it.
Again, you are just not
Again, you are just not getting it. I'm not disputing your algebra, and I have acknowledged that if SS is already "solvent", the immediate effect of cutting projected SS spending is to increase SS surpluses.
It is in where the argument goes from there that you are not getting it. I don't know if it's because you're not really listening, you're not really thinking about it, I'm just not explaining it well enough, or you're just unable to get it, but I've tried and I think I've done a good job of explaining it, and in any case I don't know how to explain it any better or differently, so I can only suggest that you pause, carefully re-read our exchange here, and if after that you still don't see what I'm saying (and see it's validity), share it with others who may be able to explain it in some way that gains your understanding.
I realize the above is probably insulting, but again, that's not my desire or my purpose, and I bear you no ill will. I also appreciate your good-faith effort to discuss this matter substantively, and I appreciate that effort. I just have to be very frank at this point.
Diverting funds is primary
The argument does not go anywhere unless/until you propose to divert SS funds to something else.
No kidding, Arne. No
No kidding, Arne. No kidding. But you are still missing the point.
The question is whether or not reducing projected SS spending could be an effective part of our efforts to reduce our overall long-term fiscal imbalance. For the millionth time, YES, it obviously could.
And again, even assuming, arguendo, that SS is fully "solvent" under current policies, if we decided to reduce projected SS spending as part of our efforts to reduce this overall imbalance, and if doing so would produce excess SS surpluses, OBVIOUSLY we would reduce/eliminate these excess SS surpluses by reducing SS FICA taxation and offsetting that revenue reduction with increases in other taxes. Look at my rent (apartment) illustration if you have sorted out your confusion about it, and you'll see how stupid it is to make the argument that Bruce Webb and some others are making based on the point that you are making (that the immediate effect of reducing projected SS spending in that SS "solvency" scenario is just higher SS surpluses). ok, PLEASE read that illustration if you still don't get my point.
Arne, And just to spell this
Arne,
And just to spell this out for you, after you look at my rent (apartment) illustration again, and if you are over your confusion regarding it (after reading my response to your comment reflecting confusion on your part), consider this:
The point you're making -- the mathematical and sequential point -- is the equivalent of telling Joe that if he moves to a cheaper apartment to free up funds to cover other expenses, it won't actually free up funds to cover other expenses unless and until he starts depositing only $900/month into the Apartment Account (rather than $1,000). Well, yeah, sure that's correct. But what's the point? What does that have to do with Joe's decision? Obviously if Joe is moving to the cheaper apartment to free up those funds, he WILL stop depositing $1,000 and start depositing only $900, right? Isn't that painfully obvious?? So again, what's your point?
Goodbye
Over at Angry Bear I said “It is irrational to discuss means testing if you do not expect a shortfall.” Your inability to understand that this statement is just another aspect of what I have said here is further indication that you not only do not agree with what I have been saying, but that you do not understand what I have been saying.
Your basic premise that solvency by itself is not sufficient is fine, but it is trivial. Not until you have added an additional premise (such as IC is more accurate than LC, or such as diversion of payroll taxes to cover the fiscal imbalance covered by other programs) that produces a lack of solvency (an imbalance in SS itself) is there any reason to discuss means testing.
Normally I would be happy to continue trying to reach an understanding (not necessarily an agreement), but since your response on Angry Bear was intentionally offensive, this will be my last communication with you about SS.
If this particular topic is no longer fruitful to pursue,
I hope you'll stick around to discuss other matters.
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
FYI Brendan, Arne came to
FYI Brendan, Arne came to this thread (and thus to SC) with my enouragement. I'd like him to stick around, but if he leaves now, it's not a net loss vs. before I brought him to SC. I mention this just because I don't want you to think I've done something to lose SC participants.
Also FYI, there's some history. I spent some time and effort months ago on other (liberal) blogs and via email exchanges trying to explain this stuff to Arne, but it was in vain. I was more than willing to try again, but it's been frustrating and I don't know if the problem with him not getting it is that he just can't or that he's not really listening and thinking.
it's been frustrating and I
I can't help but notice that you are still posting at Angry Bear. Have you considered that the reason you are frustrated is that you are the one who does not understand what other people are trying to say?
What is happening at
What is happening at (liberal echo chamber blog*) Angry Bear is the same thing that happened on RedState when I tried to convince folks there that the Bush tax cuts had NOT had a net positive impact on revenues, only in the case of my Social Security point on Angry Bear it's even worse because people are unwilling to accept simple logic and simple algebra (in the case of the RedState partisans, they were just rejecting the strong consensus view of conservative economists -- even Bush's own top economists -- which was silly enough, but not a matter of logic per se).
Hyperpartisans simply refuse to concede a point that they see as threatening to a cherished talking point of their "side". Simple as that. I suppose individuals simply not wanting to lose face personally is another factor. So few have actually sought to engage me substantively to the degree that you have, and those that have, have copped out at what could be called (just to use a competitive analogy) the "checkmate point" when they realize they have to either respond illogically, not respond at all, or give a non-response response (straw man, ad hominem, obviously bogus claim to have already given an answer or refuted a point, etc.). For just one very recent example, see my exchange with Coberly starting here http://angrybear.blogspot.com/2008/06/true-statement-for-fiscal.html#703064
So no, Arne, the fact that a bunch of hyperpartisans on a partisan echo chamber blog reject my point in a logic-defying manner does not shake my confidence in my point one bit, whether that occurs on a lefty echo chamber blog or a righty one.
* Angry Bear has a couple of whacky extremist resident trolls, but it's still essentially an echo chamber.
You answered a different question
I did not ask whether you had considered whether your point was wrong. I asked whether you had considered whether you had correctly understood what someone else was trying to say.
Well, obviously no one can
Well, obviously no one can rule out that possibility. But what I usually do in exchanges -- to the extent that the other person is actually trying to do the same -- is to try to sort such things out, either by challenging what I believe to be someone's point or by attempting to restate his/her essential point and asking if my understanding is correct, and then proceeding.
I think in the case of some people it may be that they realize that my conceptual point is valid, but they don't want to admit it, so they shift to arguments regarding what we SHOULD do (whether or not we SHOULD reduce projected SS spending) and they just pretend that they are addressing (and somehow refuting) my conceptual point regarding what we COULD do (lowering our fiscal imbalance by reducing SS spending). But that is disingenuous and immature. And I think that many others just sincerely don't get my conceptual point because they have a mental block that says "well, if that program is 'solvent', then it must not have anything to do with deficits, spending on it can't be contributing to deficits, and lowering that spending can't help reduce deficits".
Have I answered your question? Is there something in particular that you think people are trying to say that I'm not understanding correctly?
As follow-up, when Bruce
As follow-up, when Bruce Webb says that if SS is/were fully "solvent" forever, then there could be no fiscal benefit to means testing (or any other reduction in projected SS spending), meaning that it couldn't help reduce our overall fiscal imbalance, I don't know for sure if he is somehow sincerely mistaken or if he is being deliberately misleading.
When YOU agree with that statement by Bruce Webb, I think you are sincerely confused or are perhaps grasping at some technical straw that, as I've explained, is just silly (like someone telling Joe that moving to a cheaper apartment won't free up money for other expenses and reduce his overall financial imbalance, simply because he has a current policy of putting $1,000 each month into his Apartment Account http://swordscrossed.org/node/1720#comment-88589
) Why you would grasp at such a straw I'm not sure, but perhaps it's because you'd like to side with a fellow partisan (Bruce).
Arne, I do understand what
Arne,
I do understand what you've said, and I understand that it reflects confusion and misunderstandings on your part. I realize you had said something similar here prior to your comment on AB (and that something contradicted what you had seemed to finally understand based on your previous comments), but I had also pointed out your error in logic and provided a clear explanation/correction here prior to your comment on AB. When you next repeated your illogical assertion on AB, I reacted with exasperation, not knowing if you simply had not been listening to my explanations despite the patience I've shown and my efforts to get you to get it, if for some reason you just have a mental block on this point, or your comment was less than sincere.
That said, I too hope you'll stick around on SC, and hopefully you will find it worthwhile and enjoyable to participate on a blog that is not a partisan echo chamber.
I am repeating myself
I am still cogitating your further responses, but you skipped over answering this one, and I think it wold be useful to know whether we agree on this point.
No, if I'm understanding you
No, if I'm understanding you correctly, your statement is incorrect.
Let's back up a step and see if it helps sort this out.
The policy question is whether or not we should reduce projected SS spending as part of our efforts to reduce our OVERALL long-term fiscal imbalance.
Let's assume, arguendo, that under current policies SS will be fully "solvent" forever.
I think we agree that it would be irrational for someone to say that this SS "solvency" ALONE is sufficient reason to take off the table the option of reducing projected SS spending (i.e., we agree that even in this "full solvency" scenario, reducing projected SS spending could reduce our overall long-term fiscal imbalance).
Now to the question of whether or not it would be rational to consider this "solvency" a reason AT ALL (i.e, even if weighed against other considerations) for opposing reducing projected SS spending. I say NO, SS "solvency" is irrelevant to that position. It does not support that position. All this "solvency" means is that under current SS FICA tax policy (i.e., at current SS FICA tax rates and currently applicable income), SS revenues will be sufficient to cover benefits per current policy. So what? Why is that an argument against cutting projected SS spending as part of our efforts to reduce our overall long-term fiscal imbalance? As I've said, we could reduce projected SS spending, reduce SS FICA taxation, offset that revenue reduction with revenue increases from other taxes, and the result would be lower projected overall spending, unchanged projected overall revenues, and therefore a reduced long-term fiscal imbalance.
If it helps, take a look at Illustration #2 (the "Defense Tax" illustration) in my post, and just change the question:
"Would you now say 'Well, it doesn't make sense to look at cutting Defense spending as part of the solution to our fiscal imbalance, because Defense is "solvent" ?'"
To:
"Would you now say 'Well, it ONE ARGUMENT AGAINST cutting Defense spending as part of the solution to our fiscal imbalance is that Defense is "solvent" ?'"
Back a step
I do not think my statement is incorrect.
Consider the following counter example. If we knew that SS was going to run into a shortfall next year, we would need to make some type of change. The lack of solvency would be the driving condition. In addresssing this example we would not be done until we had eliminated the shortfall. An acceptable solution would require solvency (over some timeframe not defined in the example). Thus, in this example, solvency is relevant.
To extend this example to the current discussion:
The goal is to eliminate an imbalance. If SS is not solvent it is contributing to the imbalance. The set of solutions where SS is not contributing to the imbalance is only those for which SS is solvent.
The need for considering solvency comes more from set theory than from algebra.
Can we agree?
1) Solvency but itslef is not relevant.
2) Solvency as one criterion can be relevant.
ok, let's back up TWO steps
ok, let's back up TWO steps :-)
Let's talk separately about two distinct scenarios and the arguments in question.
And PLEASE NOTE that Scenario #1 is the one I've been dealing with all along on the liberal econ blogs (Thoma, Baker, DeLong, Angry Bear), and which was the impetus for this post, since it was there that I found people basing their position on the fundamental conceptual error that I've sought to correct. It is also the scenario that you and I discussed on those blogs.
Scenario #1 assumes that under current policies, SS will be fully "solvent" forever. The argument SOME make (which I'm saying is INVALID) is that this "solvency means:
- that SS is unrelated to our overall fiscal imbalance,
- that SS spending is not contributing to our overall fiscal imbalance,
- that we couldn't reduce the overall imbalance by reducing projected SS spending,
- that reducing projected SS spending would require defaulting on Trust Fund bonds.
You acknowledge that all of the above statements are INVALID, right?
Now, next question: In this scenario, is it rational to consider this "solvency" a reason (not the ONLY reason, but one reason, along with others, and to be weighed against contrary factors) to oppose reducing projected SS spending? I say NO, and I've explained why in my prior comment.
Do you agree?
Now, Scenario #2 assumes that there IS some lack of SS "solvency", and the argument in question is that we should cut projected SS spending to produce SS "solvency". Is that argument rational? In a limited sense, yes, but in a broader "big picture" sense, well, just sort of (I'll explain).
By "limited sense" I mean if we assume that SS can (or should, as a matter of policy preference) only be funded through SS FICA tax revenues, as opposed to partially funded via other general revenues (the general fund). If we make that assumption, that policy becomes a constraint, and the argument is rational.
But in the broader sense, such a funding rule need not be the case. It is not carved in stone that we cannot supplement SS FICA with other revenues to fund SS. So if someone is failing to acknowledge that his argument is dependent upon that assumption -- and that the assumption arbitrarily imposes a constraint -- then his argument is not rational.
However, if someone is basing their argument on their preference that SS be funded solely through SS FICA (and if he has a rational reason for that preference), then under Scenario #2, the argument IN FAVOR OF reducing projected SS spending (or raising SS FICA taxation) to provide SS "solvency" would be rational, meaning that in that scenario, under those conditions, a lack of SS "solvency" would indeed be relevant.
Does that clear things up?
Scenario #1 assumes that
I understand what you're
I understand what you're saying, and on a strictly technical level completely detached from any useful implication for the policy decision, you are correct, but it's worse than "silly nitpicking". It's misleading to many people, although I'm not saying that that's your intent. Again, refer back to my "Defense tax" illustration. If Defense were "solvent" based on whatever the current level of "Defense taxation" was, and someone said that, because of that "solvency", projected Defense spending was not contributing to our overall fiscal imbalance, I would hope you'd tell him that he was being ridiculous. Obviously we could reduce projected Defense spending, reduce Defense taxation, offset that revenue reduction with increases in other taxes, and the result would be lower projected overall spending, unchanged projected revenues, and therefore lower overall fiscal imbalance. I think you realize that, but I just wanted to emphasize it for anyone who may be confused/misled by your comment (again, I'm not saying that was your intention).
Just to try to make sure I'm
Just to try to make sure I'm making this clear to you, let me offer another illustration.
Joe rents an apartment for $1,000/month and plans to continue doing so for the foreseeable future. Joe has a "policy" of taking $1,000 out of his first paycheck of each month and putting that $1,000 into a separate bank account that he will only withdraw from to pay rent.
Suppose it Joe projects that he will be facing some OVERALL financial shortfall next year (or further down the road, or over his lifetime, etc.). He will have more than enough income to cover his $1,000/month rent (under his current policy of putting $1000/month into that bank account, his "apartment program" will be "solvent" forever), but he won't be able to afford other things that he values highly and that he plans to purchase -- and if he does purchase those things his debt level and debt service expenses will rise to an unsustainable level.
Now, I suggest to Joe that he move to an apartment that rents for only $900/month to reduce his projected OVERALL financial shortfall and free up some cash for those other spending priorities.
I mention in some other conversation that I never said that, under Joe's current policy, his "apartment program" lacked "solvency".
Bruce Webb comes along and says "Ahah! But you suggested to Joe that he move to a cheaper apartment! There would be no reason for you to make such a suggestion UNLESS you believed that his apartment program was NOT "solvent" under his current policy. Proof that you're a liar!"
Now, I have explained to Bruce many, many times before his saying the above that even if Joe's "apartment program" would be fully "solvent" forever under his current policy (putting $1,000 each month into that account), Joe could reduce his OVERALL financial imbalance by moving to a cheaper apartment, DEPOSITING LESS EACH MONTH IN HIS "APARTMENT" BANK ACCOUNT, and using the savings to cover more of his other expenses and reduce his projected debt level.
Nevertheless, despite my clearly explaining the above many times to Bruce, Bruce insists on his assertion, because, as he sees it, if Joe's policy is to put $1,000 each month into that account, and if his rent is $1,000, and if he can only withdraw from that account to pay rent, than his moving to a cheaper apartment will only result in the balance of that account growing perpetually (because, Bruce's thinking goes, each month Joe would be putting $1,000 into the account and withdrawing only $900, leaving an additional $100 in the account each month). So Bruce says, if the "apartment program" is assumed to be "solvent" under Joe's current policy, there's no benefit to Joe to moving to the cheaper apartment, so anyone suggesting that Joe move to a cheaper apartment must be assuming a lack of solvency in Joe's "apartment program".
To which I say, "Bruce, are you an idiot, or are you just pretending to be one?"
Your rent illustration
This is just another example of trying to simplify and making it more complicated instead.
Mathematically, until you decide that you want to spend less than $1000 dollars on rent, there is no problem. It is the act of deciding to dedicate less only $900 to rent which causes the imbalance in your example.
Granted, in your example it makes sense to consider moving, but your illustration obscures the cause and effect.
No, Arne, you're either just
No, Arne, you're either just not paying attention or you're just not getting it.
Arne, please listen.
First, there is a problem. It's Joe's projected OVERALL financial imbalance. His "apartment program" is "solvent", but he faces an OVERALL financial problem.
Second, re: your second sentence above, I have no idea what you're talking about. What imbalance are you referring to? He starts out with no imbalance in his "apartment program" (it's "solvent" -- $1,000 in, $1,000 out each month). If he moves to a $900 apartment and kept depositing $1,000 each month into the Apartment Account, he'd build up a surplus (which, while it wouldn't help him cover other expenses, wouldn't leave him with LESS for other expenses either), but if his purpose in moving to a cheaper apartment was to free up funds to cover other expenses, obviously he WOULDN'T keep depositing $1,000 into the APARTMENT ACCOUNT each month, but instead would start depositing $900 (enough to provide "solvency" at his new rent amount). So I'm not sure what you're thinking.
As for simplifying vs. making things more complicated, I have tried explaining my basic point many times in various words, via algebra, via illustrations. If it seems to you that I'm making things unnecessarily complicated, I assure you that what you are seeing is a variety of efforts to get people to understand a point that to me was simple and obvious without the need for any such efforts.
Your Defense illustraion
If you want to reach a rational understanding you are going to need to quit creating silly examples that you think actually simplify the discussion and get right down to the simple math.
If Defense and SS and Medicare and every other department were internally solvent, then there would be no fiscal imbalance to worry about.
See my comment upthread at
See my comment upthread at http://swordscrossed.org/node/1720#comment-88665
My reply there applies here as well.
Scenario 1 is clear
This post does clear up some things.
I think a lot of people are responding to you as if you have said more than 'solvency by itself is not a relevant criterion for determining whether to make changes to Social Security.'
I AM saying more than what I
I AM saying more than what I think your saying that I'm saying (yeesh, awful-sounding sentence, I know). I said that SS "solvency" was not "in itself" -- i.e., per se -- a rational reason to oppose reductions in projected SS spending. I am NOT just saying that SS "solvency" is insufficient "by itself" -- i.e. as the sole criterion -- for opposing such reductions. The reason I add "per se" or "in itself" is because projections of SS revenues and of SS spending are indeed relevant to that policy decision, but not because of their size relative to each other, but rather merely because they are part of OVERALL revenues and OVERALL spending, respectively, and in turn part of OVERALL deficits. That's the only reason I add "per se" or "in itself". As I've said not only is SS "solvency" per se irrational as a SOLE criterion for such a policy position, it is not even rational as "a" criterion among others.
Are you clear on the above?
We clearly agree on one thing and disagree on another
Agree:1. Solvency by itself (to the exclusion anything else - as opposed to in itself [per se]) is not a good reason to oppose changes to SS.
Disagree: 2. Solvency is a reasonable criterion when considered a part of a set of criteria to determine whether a change should be made to SS.
When these two statements are not made carefully some people could interpret them to be the same. People who agree with you on 1 and disagree on 2 may end up sounding like they disagree with you on 1 because of careless writing and/or careless reading.
First, again, at least most
First, again, at least most of the people I've encountered on those blogs (Thoma's, Baker's, DeLong's, and AB), and whom I've tried many, many, many times to correct, are saying that if SS under current policies will be fully solvent forever, then that alone is enough of a reason NOT to reduce projected SS spending as part of our efforts to reduce our long-term fiscal imbalance -- because, they contend, if SS is "solvent" then it is unrelated to overall deficits, so there would be no reason to reduce projected spending (or if you did, you'd only end up with excessive SS surpluses rather than lower overall deficits). So it is NOT that people are merely disagreeing with me on #2 in your comment and reading/writing carelessly. They have seen my point explained very clearly many times and in various forms to try to gain their understanding, and the are simply disagreeing with #1.
Second, again, it is irrational to say that SS "solvency" is even one reason to lean against reducing projected SS spending as part of our efforts to reduce our overall long-term fiscal imbalance. SS "solvency" is irrelevant to that position -- it doesn't support that position (that policy preference) in any rational way. Again, SS "solvency" just means that the projected revenues under current SS FICA taxation policy (SS FICA tax rates and applicable income) will provide enough funds to cover projected spending under current SS policy (benefit levels and eligibility). But we can CHANGE that SS FICA taxation policy to match whatever level of spending we choose. Again, look at my "Defense tax" illustration for guidance. Would you really say that one reason to oppose cuts in projected Defense spending (as part of our efforts to reduce our overall fiscal imbalance) is that Defense is "solvent"?? That would be silly, right?