The NYT had an interesting article on the growth of high-speed trading on U.S. stock exchanges. While the piece notes the risks that these trading system can pose to long-term investor by taking profitable opportunities ahead of them, it reports the industry’s claim that it benefits long-term investors:
“The new trading sites and high-speed trading firms have managed to fend off critics by pointing to benefits that long-term investors have derived from the sophisticated markets.
One of the most popular ways to gauge how investors are doing is the difference between the price at which a stock can be bought and sold at a given moment — the so-called bid-ask spread. When this goes down, day traders, mutual funds and other institutional investors pay less to move in and out of stocks.”
While long-term investors in principle benefit from lower transactions costs, if these costs are offset by increased trading then there may be little or no gain to the investor. For example, if the average price of selling a share of stock falls by 50 percent, but fund managers respond to the price decline by doubling the amount of trading they do, total trading costs to investors will be unchanged.
There is research on the response of trading volume to prices that suggests the ratio is close to 1, meaning that trading volume will typically rise by an amount that will roughly offset any decline in the cost of trading. This means that ordinary investors are likely to see little benefit from any decline in trading costs associated with high-speed trading.
The NYT had an interesting article on the growth of high-speed trading on U.S. stock exchanges. While the piece notes the risks that these trading system can pose to long-term investor by taking profitable opportunities ahead of them, it reports the industry’s claim that it benefits long-term investors:
“The new trading sites and high-speed trading firms have managed to fend off critics by pointing to benefits that long-term investors have derived from the sophisticated markets.
One of the most popular ways to gauge how investors are doing is the difference between the price at which a stock can be bought and sold at a given moment — the so-called bid-ask spread. When this goes down, day traders, mutual funds and other institutional investors pay less to move in and out of stocks.”
While long-term investors in principle benefit from lower transactions costs, if these costs are offset by increased trading then there may be little or no gain to the investor. For example, if the average price of selling a share of stock falls by 50 percent, but fund managers respond to the price decline by doubling the amount of trading they do, total trading costs to investors will be unchanged.
There is research on the response of trading volume to prices that suggests the ratio is close to 1, meaning that trading volume will typically rise by an amount that will roughly offset any decline in the cost of trading. This means that ordinary investors are likely to see little benefit from any decline in trading costs associated with high-speed trading.
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The NYT had an article reporting on how the presidential campaigns plan to make Medicare an issue in Florida as they compete for older voters. At one point it quotes Ed Gillespie, a senior adviser to the Romney campaign:
“The fact is, we’re going to go on offense here. Because the president has raided the Medicare trust fund to the tune of $716 billion to pay for a massive expansion of government known as Obamacare.”
It would have been helpful to point out to readers that President Obama did not “raid” the Medicare trust fund. This concept literally has not meaning. The trust fund holds U.S. government bonds that correspond to the surplus it has accumulated over the years. President Obama did not default on these bonds, which means that he has not pulled any money out of the Medicare system.
The claim that President Obama “raided” the trust fund because he has proposed additional health care spending in other areas (including the elimination of the doughnut hole in the Medicare prescription drug benefit) is like claiming that a person’s checking account had been raided because the bank lent the money to a small business. This is the way a modern economy works.
Either Mr. Romney’s senior advisor is completely clueless about the way the economy works or he is deliberately misrepresenting President Obama’s actions. Either case would make an interesting news story.
The NYT had an article reporting on how the presidential campaigns plan to make Medicare an issue in Florida as they compete for older voters. At one point it quotes Ed Gillespie, a senior adviser to the Romney campaign:
“The fact is, we’re going to go on offense here. Because the president has raided the Medicare trust fund to the tune of $716 billion to pay for a massive expansion of government known as Obamacare.”
It would have been helpful to point out to readers that President Obama did not “raid” the Medicare trust fund. This concept literally has not meaning. The trust fund holds U.S. government bonds that correspond to the surplus it has accumulated over the years. President Obama did not default on these bonds, which means that he has not pulled any money out of the Medicare system.
The claim that President Obama “raided” the trust fund because he has proposed additional health care spending in other areas (including the elimination of the doughnut hole in the Medicare prescription drug benefit) is like claiming that a person’s checking account had been raided because the bank lent the money to a small business. This is the way a modern economy works.
Either Mr. Romney’s senior advisor is completely clueless about the way the economy works or he is deliberately misrepresenting President Obama’s actions. Either case would make an interesting news story.
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In his NYT column this morning, Roger Cohen repeated a theme about the presidential race that the punditry is anxious to shove down the public’s throat:
“Saving Private Romney is going to involve an ideological battle — over the size of government, the extent of Americans’ obligations to one another, even the soul of the country — that is no less than the United States deserves.”
This is utter nonsense. In fact on the vast majority of issues affecting the well-being of typical Americans Governor Romney and President Obama agree. They both strongly support the policies that have shifted a vast amount of income and wealth from ordinary workers to the richest 1.0 percent over the last three decades. The difference is that President Obama has committed himself to policies where the arithmetic adds up; Governor Romney refuses to be bound in the same way.
The vast majority of the upward redistribution over the last three decades has been in before-tax income, not after-tax. This has come about through a coddled and bloated financial sector that relies on massive government subsidies in the form of “too-big-to-fail” insurance. It has been the result of a system of corporate governance in which directors get 6-figure payoffs to look the other way as the CEOs and other top management pilfer the company.
The upward redistribution was also the result of a trade policy that deliberately sought to put manufacturing workers in direct competition with low-paid workers in the developing world while largely protecting highly paid doctors and lawyers from similar competition. And it is the result of a Federal Reserve Board policy that deliberately throws millions of workers out of work to put downward pressure on their wages, thereby keeping inflation below its target rate.
These and other policies are the real story about “the extent of Americans’ obligations to one another, even the soul of the country.” Unfortunately, there is no real choice offered to the public in this area since the position of the candidates on these issues is largely indistinguishable.
There is a difference in that President Obama has laid out tax and budget plans that add up, whereas Governor Romney and Representative Ryan have refused to do so. Romney and Ryan have promised reductions in tax rates that will be offset by the elimination of loopholes, but have not identified any loopholes for elimination. Since they have taken the special treatment of capital gains and dividends off the table, it is not even possible to make up for the revenue they would lose their tax cuts as was recently shown by the Tax Policy Center’s analysis. (Cohen wrongly implies that Ryan’s plan might leave the wealthy paying higher taxes by eliminating loopholes. Actually, most would be paying close to zero tax since he proposes eliminating the tax on capital gains and dividends.)
The other place in which Romney-Ryan show their disdain for arithmetic is with their long-term budget plan. The Congressional Budget Office shows that the Ryan plan, which Romney has embraced, would zero out everything in the federal budget except Social Security, health care and defense after 2040. Presumably, Romney and Ryan don’t really intend to shut down the State Department, the border patrol, the federal court system and all the other areas that would get zero funding under their plan, but that is the implication of their budget.
In short, the real choice in this election is not about values, those are pretty much the same between the candidates. They both favor the rigging of the rules to the benefit of the wealthy. The difference is that President Obama is prepared to accept that laws of arithmetic are binding whereas Romney-Ryan refused to be similarly restricted in their policy proposals.
In his NYT column this morning, Roger Cohen repeated a theme about the presidential race that the punditry is anxious to shove down the public’s throat:
“Saving Private Romney is going to involve an ideological battle — over the size of government, the extent of Americans’ obligations to one another, even the soul of the country — that is no less than the United States deserves.”
This is utter nonsense. In fact on the vast majority of issues affecting the well-being of typical Americans Governor Romney and President Obama agree. They both strongly support the policies that have shifted a vast amount of income and wealth from ordinary workers to the richest 1.0 percent over the last three decades. The difference is that President Obama has committed himself to policies where the arithmetic adds up; Governor Romney refuses to be bound in the same way.
The vast majority of the upward redistribution over the last three decades has been in before-tax income, not after-tax. This has come about through a coddled and bloated financial sector that relies on massive government subsidies in the form of “too-big-to-fail” insurance. It has been the result of a system of corporate governance in which directors get 6-figure payoffs to look the other way as the CEOs and other top management pilfer the company.
The upward redistribution was also the result of a trade policy that deliberately sought to put manufacturing workers in direct competition with low-paid workers in the developing world while largely protecting highly paid doctors and lawyers from similar competition. And it is the result of a Federal Reserve Board policy that deliberately throws millions of workers out of work to put downward pressure on their wages, thereby keeping inflation below its target rate.
These and other policies are the real story about “the extent of Americans’ obligations to one another, even the soul of the country.” Unfortunately, there is no real choice offered to the public in this area since the position of the candidates on these issues is largely indistinguishable.
There is a difference in that President Obama has laid out tax and budget plans that add up, whereas Governor Romney and Representative Ryan have refused to do so. Romney and Ryan have promised reductions in tax rates that will be offset by the elimination of loopholes, but have not identified any loopholes for elimination. Since they have taken the special treatment of capital gains and dividends off the table, it is not even possible to make up for the revenue they would lose their tax cuts as was recently shown by the Tax Policy Center’s analysis. (Cohen wrongly implies that Ryan’s plan might leave the wealthy paying higher taxes by eliminating loopholes. Actually, most would be paying close to zero tax since he proposes eliminating the tax on capital gains and dividends.)
The other place in which Romney-Ryan show their disdain for arithmetic is with their long-term budget plan. The Congressional Budget Office shows that the Ryan plan, which Romney has embraced, would zero out everything in the federal budget except Social Security, health care and defense after 2040. Presumably, Romney and Ryan don’t really intend to shut down the State Department, the border patrol, the federal court system and all the other areas that would get zero funding under their plan, but that is the implication of their budget.
In short, the real choice in this election is not about values, those are pretty much the same between the candidates. They both favor the rigging of the rules to the benefit of the wealthy. The difference is that President Obama is prepared to accept that laws of arithmetic are binding whereas Romney-Ryan refused to be similarly restricted in their policy proposals.
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The Washington Post continued its war on Social Security and Medicare today with a column by Charles Lane that told readers that seniors are wealthy because they have enough money (almost) to pay off their mortgage. No, I’m not kidding.
Lane wrote:
“Last year, the Pew Charitable Trusts reported that the median net worth of households headed by an adult 65 or older rose 42 percent in real terms between 1984 and 2009, to $170,494. During the same period, median net worth for households headed by an adult younger than 35 shrank 68 percent, to $3,662.”
Okay boys and girls, get out your pencil and paper. Net worth counts all the assets that seniors have. This means whatever money they have in 401(k)s or other retirement accounts, savings accounts, the value of their car and the equity in their home. The most recent data on existing home sales show that the price of the median home is now $189,400. This means that if the typical senior household cashed in their 401(k), emptied their saving and checking account and sold their car they would have almost enough money to pay off their mortgage. They would then be able to live rent and mortgage free, but would be entirely dependent on a Social Security check that averages a bit more than $1,200 a month. Yep, that’s the good life. Oh yeah, this is the median, half of seniors have less money than this.
In case you’re wondering about the big gain in wealth since 1984, seniors were far more likely to have defined benefit pensions in 1984 than in 2009. Defined benefit pensions are not factored into this wealth figure.
In his crusade against Medicare and Social Security Lane even gets the poverty data that he cites in his piece wrong. He told readers:
“The elderly poverty rate is higher under a different statistical definition designed to reflect seniors’ greater out-of-pocket medical costs, but it still remains slightly below that of the general population.”
There are no fact-checkers when the Washington Post decides to bash the elderly. The Census Bureau data show (Table 1) that the poverty rate for seniors under its alternative measure is 15.9 percent. That compares to 15.2 percent for the 18-64 population.
Just for fun, let’s look at the other side of Lane’s wealth story, the 68 percent drop in wealth among people under age 35. This number implies that the median wealth for the under 35 group was around $11,400 in 1984, before the old-timers started stealing all their money. Let’s see, suppose that the average person under age 35 could expect to live another 55 years. This means that their stock of wealth in 1984 would give them about $200 a year to support themselves. Today they can just get a bit less than $70 a year from their $3,662.
Okay, the point of this is that wealth for people under age 35 doesn’t mean anything. What matters for people under age 35 are their career prospects. Do they have a decent job with health care and a pension, can they expect to see a rising income over time? In fact, this picture does not look good right now, but the villains here are people with names like Alan Greenspan and Robert Rubin, not retirees scraping by on their Social Security and Medicare.
Serious people do not use wealth as a measure of the well-being of young people, but Lane is not engaged in a serious discussion. This is about cutting Social Security and Medicare and facts and logic are not going to be allowed to stand in the way.
Correction: Charles Lane points out to me that the Census alternative measure of the poverty rate for all people (including children) is 16.0 percent, which is in fact slightly above the 15.9 percent rate for people over age 65.
The Washington Post continued its war on Social Security and Medicare today with a column by Charles Lane that told readers that seniors are wealthy because they have enough money (almost) to pay off their mortgage. No, I’m not kidding.
Lane wrote:
“Last year, the Pew Charitable Trusts reported that the median net worth of households headed by an adult 65 or older rose 42 percent in real terms between 1984 and 2009, to $170,494. During the same period, median net worth for households headed by an adult younger than 35 shrank 68 percent, to $3,662.”
Okay boys and girls, get out your pencil and paper. Net worth counts all the assets that seniors have. This means whatever money they have in 401(k)s or other retirement accounts, savings accounts, the value of their car and the equity in their home. The most recent data on existing home sales show that the price of the median home is now $189,400. This means that if the typical senior household cashed in their 401(k), emptied their saving and checking account and sold their car they would have almost enough money to pay off their mortgage. They would then be able to live rent and mortgage free, but would be entirely dependent on a Social Security check that averages a bit more than $1,200 a month. Yep, that’s the good life. Oh yeah, this is the median, half of seniors have less money than this.
In case you’re wondering about the big gain in wealth since 1984, seniors were far more likely to have defined benefit pensions in 1984 than in 2009. Defined benefit pensions are not factored into this wealth figure.
In his crusade against Medicare and Social Security Lane even gets the poverty data that he cites in his piece wrong. He told readers:
“The elderly poverty rate is higher under a different statistical definition designed to reflect seniors’ greater out-of-pocket medical costs, but it still remains slightly below that of the general population.”
There are no fact-checkers when the Washington Post decides to bash the elderly. The Census Bureau data show (Table 1) that the poverty rate for seniors under its alternative measure is 15.9 percent. That compares to 15.2 percent for the 18-64 population.
Just for fun, let’s look at the other side of Lane’s wealth story, the 68 percent drop in wealth among people under age 35. This number implies that the median wealth for the under 35 group was around $11,400 in 1984, before the old-timers started stealing all their money. Let’s see, suppose that the average person under age 35 could expect to live another 55 years. This means that their stock of wealth in 1984 would give them about $200 a year to support themselves. Today they can just get a bit less than $70 a year from their $3,662.
Okay, the point of this is that wealth for people under age 35 doesn’t mean anything. What matters for people under age 35 are their career prospects. Do they have a decent job with health care and a pension, can they expect to see a rising income over time? In fact, this picture does not look good right now, but the villains here are people with names like Alan Greenspan and Robert Rubin, not retirees scraping by on their Social Security and Medicare.
Serious people do not use wealth as a measure of the well-being of young people, but Lane is not engaged in a serious discussion. This is about cutting Social Security and Medicare and facts and logic are not going to be allowed to stand in the way.
Correction: Charles Lane points out to me that the Census alternative measure of the poverty rate for all people (including children) is 16.0 percent, which is in fact slightly above the 15.9 percent rate for people over age 65.
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Associated Press decided to use a “Fact Check” to wrongly tell readers that Social Security adds to the budget deficit. The piece acts as though Social Security’s impact on the budget is somewhat mysterious, with supporters of the program, like Representative Xavier Becerra and Senator Bernie Sanders, being confused into thinking that the program doesn’t add to the deficit, even though it really does.
There actually is not much mystery here to those familiar with government budget documents. There are two different measures of the deficit. There is the unified budget deficit, which adds in the payroll taxes collected for Social Security, just like any other source of revenue, and treats the benefits paid out by Social Security just like any other expenditure. In this measure, Social Security will add to the deficit in any year in which its benefit payments exceed its tax collections. (This is the case, even if the fund still has a surplus due to the interest it collects on the government bonds it holds, although it means that Social Security is contributing to the deficit because it is spending some of the interest it has earned.)
However there is also the on-budget deficit, which reflects the fact that Social Security is not supposed to be counted as part of the budget. This mysterious budget can be found in just about every single budget document the government publishes (e.g. here, Summary Table 1), saving arithmetically challenged reporters the need to subtract out Social Security taxes and spending from the unified budget. (The on-budget deficit also corresponds to the debt subject to the legal limit, which has played such a prominent role recently.)
Under the law, Social Security cannot possibly contribute to the on-budget deficit. It can only spend money that has been collected from the designated payroll tax or from the investment of past surpluses. (The money from general revenue to make up for the temporary payroll tax cut the last two years is an exception to this rule.) If benefit payments exceed current revenue and the money available in the trust fund, as the Congressional Budget Office projects will happen in 2038, then Social Security would not be able to pay full scheduled benefits. It could not force the government to increase its deficit.
It is incredible that a “fact check” failed to note the on-budget budget. This is obviously what Becerra and Sanders were referring to when they said that Social Security does not contribute to the deficit. Reporters who write on Social Security should be familiar with it.
This fact check also included some gratuitous editorializing on the deficit. It told readers:
“The issue [whether Social Security contributes to the deficit] is important because the federal government’s annual deficit already exceeds $1 trillion, making any more borrowing tough to swallow.”
It is not clear why the article considers more borrowing difficult to swallow. The financial markets have a very different view since investors are willing to lend the U.S. government money at extremely low interest rates. The reason why the government is running large deficits is because private sector spending plunged following the collapse of the housing bubble. Those who want to see the economy grow more rapidly are likely to prefer more government spending and larger deficits, since there is no other way to make up the shortfall in demand. Associated Press should leave editorializing like this in its opinion pieces.
Associated Press decided to use a “Fact Check” to wrongly tell readers that Social Security adds to the budget deficit. The piece acts as though Social Security’s impact on the budget is somewhat mysterious, with supporters of the program, like Representative Xavier Becerra and Senator Bernie Sanders, being confused into thinking that the program doesn’t add to the deficit, even though it really does.
There actually is not much mystery here to those familiar with government budget documents. There are two different measures of the deficit. There is the unified budget deficit, which adds in the payroll taxes collected for Social Security, just like any other source of revenue, and treats the benefits paid out by Social Security just like any other expenditure. In this measure, Social Security will add to the deficit in any year in which its benefit payments exceed its tax collections. (This is the case, even if the fund still has a surplus due to the interest it collects on the government bonds it holds, although it means that Social Security is contributing to the deficit because it is spending some of the interest it has earned.)
However there is also the on-budget deficit, which reflects the fact that Social Security is not supposed to be counted as part of the budget. This mysterious budget can be found in just about every single budget document the government publishes (e.g. here, Summary Table 1), saving arithmetically challenged reporters the need to subtract out Social Security taxes and spending from the unified budget. (The on-budget deficit also corresponds to the debt subject to the legal limit, which has played such a prominent role recently.)
Under the law, Social Security cannot possibly contribute to the on-budget deficit. It can only spend money that has been collected from the designated payroll tax or from the investment of past surpluses. (The money from general revenue to make up for the temporary payroll tax cut the last two years is an exception to this rule.) If benefit payments exceed current revenue and the money available in the trust fund, as the Congressional Budget Office projects will happen in 2038, then Social Security would not be able to pay full scheduled benefits. It could not force the government to increase its deficit.
It is incredible that a “fact check” failed to note the on-budget budget. This is obviously what Becerra and Sanders were referring to when they said that Social Security does not contribute to the deficit. Reporters who write on Social Security should be familiar with it.
This fact check also included some gratuitous editorializing on the deficit. It told readers:
“The issue [whether Social Security contributes to the deficit] is important because the federal government’s annual deficit already exceeds $1 trillion, making any more borrowing tough to swallow.”
It is not clear why the article considers more borrowing difficult to swallow. The financial markets have a very different view since investors are willing to lend the U.S. government money at extremely low interest rates. The reason why the government is running large deficits is because private sector spending plunged following the collapse of the housing bubble. Those who want to see the economy grow more rapidly are likely to prefer more government spending and larger deficits, since there is no other way to make up the shortfall in demand. Associated Press should leave editorializing like this in its opinion pieces.
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The Washington Post seriously misled readers in an article on the Ryan budget. It asserted:
“The Congressional Budget Office [CBO] estimates that it [the Ryan Budget] would not bring the federal books into balance until around 2040. And most of its savings come from the long-term restructuring of entitlement programs.”
Actually, in percentage terms by far the biggest savings in the Ryan budget comes from essentially shutting down the federal government, except for Social Security, health care programs and the military. The CBO analysis of his budget [Table 2] shows that all other areas of federal spending falls to 4.75 percent of GDP by 2040 and 3.75 percent of GDP by 2050.
Military spending is currently more than 4.0 percent of GDP and Representative Ryan has indicated that he wants to keep spending at its current levels or raise it. This means that under the Ryan Budget, by 2040 there will be almost no money left for national parks, education, the State Department, the Food and Drug Aministration, federal courts and all the other activities currently supported by the federal government. By 2050 there will be no money left for these activities. The Post has seriously misrepresented Representative Ryan’s agenda by not pointing out thus fact to readers.
The article also misled readers by repeatedly referring to a report from the Bowles-Simpson commission. There was not report from the commission. A commission report required the support of 14 of the 18 members of the commission as is clearly stated in its by-laws. No plan received the necessary support to be approved by the commission. The report noted in this piece should be indentified as the report of the commission’s co-chairs, Morgan Stanley director Erskine Bowles and former Senator Alan Simpson.
The Washington Post seriously misled readers in an article on the Ryan budget. It asserted:
“The Congressional Budget Office [CBO] estimates that it [the Ryan Budget] would not bring the federal books into balance until around 2040. And most of its savings come from the long-term restructuring of entitlement programs.”
Actually, in percentage terms by far the biggest savings in the Ryan budget comes from essentially shutting down the federal government, except for Social Security, health care programs and the military. The CBO analysis of his budget [Table 2] shows that all other areas of federal spending falls to 4.75 percent of GDP by 2040 and 3.75 percent of GDP by 2050.
Military spending is currently more than 4.0 percent of GDP and Representative Ryan has indicated that he wants to keep spending at its current levels or raise it. This means that under the Ryan Budget, by 2040 there will be almost no money left for national parks, education, the State Department, the Food and Drug Aministration, federal courts and all the other activities currently supported by the federal government. By 2050 there will be no money left for these activities. The Post has seriously misrepresented Representative Ryan’s agenda by not pointing out thus fact to readers.
The article also misled readers by repeatedly referring to a report from the Bowles-Simpson commission. There was not report from the commission. A commission report required the support of 14 of the 18 members of the commission as is clearly stated in its by-laws. No plan received the necessary support to be approved by the commission. The report noted in this piece should be indentified as the report of the commission’s co-chairs, Morgan Stanley director Erskine Bowles and former Senator Alan Simpson.
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That could have been the headline of a Boston Globe article on the size of the projected Social Security shortfall if the paper had not decided to use its news section to scare readers about the state of Social Security. In keeping with this effort, the headline of a recent article read:
“Social Security surplus dwarfed by future deficits.”
The article then gave a series of numbers which could only be intended to scare readers since it is extremely unlikely that even 0.1 percent of the Globe’s readers have any idea what they mean.
“The projected shortfall in 2033 is $623 billion, according to the trustees’ latest report. It reaches $1 trillion in 2045 and nearly $7 trillion in 2086, the end of a 75-year period used by Social Security’s number crunchers because it covers the retirement years of just about everyone working today.”
To make sense of these numbers it would be necessary to know how large the economy is projected to be in 2033, 2045, and 2086. GDP in these years is projected to be approximately $41 trillion, $72 trillion, and $440 trillion. Providing these GDP numbers would have allowed readers to put these projected deficit figures in some context.
If the Globe was interested in conveying information instead of pushing its agenda for cutting benefits it might have told readers that the tax increase needed to keep the system fully funded over its 75-year planning horizon is just over 5 percent of projected wage growth for the next 30 years. (This is using the Social Security trustees projections. It would be less than 4 percent of projected wage growth using the projections from the Congressional Budget Office.)
While many readers would point out that most workers have not been seeing wage growth in recent decades, that complaint would highlight the absurdity of the Globe’s piece. The upward redistribution of income over the last three decades has done far more to hurt the living standards of ordinary workers than any possible tax increases associated with Social Security.
In fact, it is one of the main reasons that the system is projected to face a shortfall. If the income distribution had remained constant at its 1983 level (the last time the program was adjusted), the projected shortfall would be roughly half of its current size, since much more income would be subject to the Social Security tax.
Going forward, the impact of the distribution of future productivity gains on workers’ standard of living will swamp the impact of any possible tax increases used to fund the Social Security program. Obviously the Globe has decided to use its news section to divert the public’s attention from this obvious point. Instead it is pushing for cuts in Social Security benefits.
That could have been the headline of a Boston Globe article on the size of the projected Social Security shortfall if the paper had not decided to use its news section to scare readers about the state of Social Security. In keeping with this effort, the headline of a recent article read:
“Social Security surplus dwarfed by future deficits.”
The article then gave a series of numbers which could only be intended to scare readers since it is extremely unlikely that even 0.1 percent of the Globe’s readers have any idea what they mean.
“The projected shortfall in 2033 is $623 billion, according to the trustees’ latest report. It reaches $1 trillion in 2045 and nearly $7 trillion in 2086, the end of a 75-year period used by Social Security’s number crunchers because it covers the retirement years of just about everyone working today.”
To make sense of these numbers it would be necessary to know how large the economy is projected to be in 2033, 2045, and 2086. GDP in these years is projected to be approximately $41 trillion, $72 trillion, and $440 trillion. Providing these GDP numbers would have allowed readers to put these projected deficit figures in some context.
If the Globe was interested in conveying information instead of pushing its agenda for cutting benefits it might have told readers that the tax increase needed to keep the system fully funded over its 75-year planning horizon is just over 5 percent of projected wage growth for the next 30 years. (This is using the Social Security trustees projections. It would be less than 4 percent of projected wage growth using the projections from the Congressional Budget Office.)
While many readers would point out that most workers have not been seeing wage growth in recent decades, that complaint would highlight the absurdity of the Globe’s piece. The upward redistribution of income over the last three decades has done far more to hurt the living standards of ordinary workers than any possible tax increases associated with Social Security.
In fact, it is one of the main reasons that the system is projected to face a shortfall. If the income distribution had remained constant at its 1983 level (the last time the program was adjusted), the projected shortfall would be roughly half of its current size, since much more income would be subject to the Social Security tax.
Going forward, the impact of the distribution of future productivity gains on workers’ standard of living will swamp the impact of any possible tax increases used to fund the Social Security program. Obviously the Globe has decided to use its news section to divert the public’s attention from this obvious point. Instead it is pushing for cuts in Social Security benefits.
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A NYT article on efforts to change Italy’s labor laws contrasted the protections for Italian workers with those for workers in the United States. It told of the lengthy legal process that an employer had to follow to fire a worker who he alleged had been caught stealing with the situation in the United States:
“By contrast, a private sector employer in the United States could have terminated the worker as soon as a theft was detected, unless a union contract was involved or antidiscrimination laws were violated.”
Actually, a private sector employer can terminate a worker who it thinks is stealing, even if they never caught the worker. In fact, they can fire the worker just because they think they are the type of person who might steal or just because they don’t like him or her. Workers who are not protected by union contracts or civil service guidelines can be fired any time for any reason that does not violate anti-discrimination laws.
The one exception to this rule is the state of Montana. Montana has just cause dismissal, which means that employers must have a reason for firing a worker.
[Addendum: It would have been appropriate to speak to a union representative or at least someone other than an employer to get their perspective on this issue. The folks at the NYT apparently are under the impression that employers always tell the truth. In fact, this is sometimes not the case.]
A NYT article on efforts to change Italy’s labor laws contrasted the protections for Italian workers with those for workers in the United States. It told of the lengthy legal process that an employer had to follow to fire a worker who he alleged had been caught stealing with the situation in the United States:
“By contrast, a private sector employer in the United States could have terminated the worker as soon as a theft was detected, unless a union contract was involved or antidiscrimination laws were violated.”
Actually, a private sector employer can terminate a worker who it thinks is stealing, even if they never caught the worker. In fact, they can fire the worker just because they think they are the type of person who might steal or just because they don’t like him or her. Workers who are not protected by union contracts or civil service guidelines can be fired any time for any reason that does not violate anti-discrimination laws.
The one exception to this rule is the state of Montana. Montana has just cause dismissal, which means that employers must have a reason for firing a worker.
[Addendum: It would have been appropriate to speak to a union representative or at least someone other than an employer to get their perspective on this issue. The folks at the NYT apparently are under the impression that employers always tell the truth. In fact, this is sometimes not the case.]
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A NYT piece praised Representative Ryan’s willingness to specify the items in the budget that he would cut to meet his deficit targets. (Actually, according to the Congressional Budget Office’s analysis of his proposal it would eliminate just about everything in the federal budget by 2040, except Social Security, Medicare, Medicaid, and the Defense Department.) However the piece did not point out that Representative Ryan, like Governor Romney, has refused to identify the tax deductions he would eliminate to make up for his proposed reductions in tax rates.
In order to raise anywhere near the revenue he claims, Representative Ryan would have to eliminate the deductions for mortgage interest, property taxes, state and local income taxes, employer provided health insurance and just about every other deduction that benefits lower and middle income taxpayers. For some reason, both candidates have been unwilling to acknowledge this fact.
A NYT piece praised Representative Ryan’s willingness to specify the items in the budget that he would cut to meet his deficit targets. (Actually, according to the Congressional Budget Office’s analysis of his proposal it would eliminate just about everything in the federal budget by 2040, except Social Security, Medicare, Medicaid, and the Defense Department.) However the piece did not point out that Representative Ryan, like Governor Romney, has refused to identify the tax deductions he would eliminate to make up for his proposed reductions in tax rates.
In order to raise anywhere near the revenue he claims, Representative Ryan would have to eliminate the deductions for mortgage interest, property taxes, state and local income taxes, employer provided health insurance and just about every other deduction that benefits lower and middle income taxpayers. For some reason, both candidates have been unwilling to acknowledge this fact.
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