koshersalaami

koshersalaami
Birthday
October 01
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Male, Jewish, in my extremely early sixties, married with kids (well, at this point I guess that should be "kid"). Thanks to Lezlie for avatar artwork - sort of a translation of my screen name. "Salaam" is peace in Arabic, hence the peace sign. (No, my name doesn't mean "hunk of meat" and yes, the pun is intentional.)

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Editor’s Pick
JANUARY 7, 2011 10:38AM

Restocking the Lake: The Argument about Social Security

Rate: 27 Flag

I've been reading some excellent posts lately from Kemstone and Rw005g on Social Security about how there are moves to reduce and/or privatize it, ostensibly out of the misguided conviction that any program run by the Government is intrinsically a bad idea but actually because banks can make way more money if they can force all Americans to speculate on their retirement income, particularly with the Government's blessing. (Now THAT's an awful opening sentence. It sounds like I'm writing in German.)

We're looking at the latest incarnation of what can best be described as class warfare, a term I'm extremely uncomfortable with given that I'm  capitalist rather than Marxist. (Where I part ways with a lot of my fellow capitalists is that I believe that the market operates more efficiently when regulated.) What I've learned over time is that class warfare is overwhelmingly practiced downward. You'd think that the poor would steal from the rich, being as the rich are where the money is, but it almost always works in the other direction. Go figure.

What's currently happening is that we have historically low tax rates on both corporations (some oil companies are basically not paying any) and rich individuals. Most of us know that the estate tax has been decimated and that we're still giving huge tax breaks to millionaires. Now we're hearing complaints about how spending on social programs, such as Social Security, is fiscally irresponsible, primarily from people who are causing our budgetary problems by being too fiscally irresponsible to pay their fair share of taxes themselves. In other words, this is an effort to take a financial burden off the rich and put it on the middle class.

We could argue until the cows come home about how immoral this is. Though I agree, there is an extent to which morality can be viewed as subjective. What strikes me about this action isn't so much its immorality as its stupidity. Stupidity has the advantage of being considerably less subjective.

The problem, to use a metaphor, is that our lake is running low on fish. We have one political party, and apparently parts of the other, that argue that the government should subsidize the purchase of bigger boats, bigger nets, better bait for those big enough to be in the commercial fishing business. However, that course of action will just lead to more people fighting over fewer fish. The place to invest isn't in improved fishing gear, the place to invest is in restocking the lake.

Where do most businesses make money? It isn't from investment, because investment is all borrowed, so none of it is actually profit. They make money from their customers. There are only two kinds of businesses I know of that don't depend on their customers having money to spend with them: One is called a shelter or writeoff and the other is called a front. Some businesses, such as banks, have a customer base that is primarily made up of institutions, but most have customer bases that are primarily made up of individuals. They make money because enough individuals have enough to spend with them.

By the way, businesses whose customer bases are primarily institutional are also dependent on individuals, just not as directly. Banks that lend to, for example, various governments (State, Federal, local) that run deficits are ultimately dependent on those governments' sources of tax income which is, of course, individuals.

So, how do we restock the lake?

By making sure that long-term disposable income gets into as many hands as possible.

How do we do that?

All sorts of ways. We know that people earn more on average if they're more educated, so subsidize education, including college education. This doesn't mean "subsidize" by giving banks a way to make money by lending to students who will take most of their lives to pay off their college loans; it means subsidizing such that these students end up with long-term disposable income ASAP.

We know that young children with inadequate education and support at home to do well will make less money over their lifetimes, so they'll be less economically useful to all of us: less useful as employees for American businesses, spending less money as customers for those businesses, paying less taxes to governments and using more social services (and, quite possibly, prisons). So, to maximize their lifetime incomes, subsidize whatever works, including programs like Head Start, and of course primary schools in districts that don't have enough of a tax base to provide a decent primary education.

We know that certain industries are poised for enormous growth and that we as a nation will be better off if those industries are largely based here. This is particularly true of "green" technology at the moment, emphatically including renewable energy. So, commit on a governmental level to using and requiring these technologies so American companies can make the case to banks that loaning them money to expand in these areas constitutes a good investment. That's already being done overseas, so a lot of jobs that would end up here are ending up in Germany, Denmark, and China, often with American technology because we didn't make this commitment soon enough. Right now, too much government support is instead going to the oil and coal industries, which have all sorts of influence but don't represent our best growth area for a plethora of reasons.

We know that our national demographics are such that an awful lot of Americans will retire in the next several years. The economy will be a whole lot better off if they have disposable income than if millions and millions of them are broke. So, DON'T FOOL WITH SOCIAL SECURITY! That would be an unbelievably irresponsible place to try to save money, not only because it would be disastrous to the aging population but because it would be disastrous to the millions of businesses who depend on their spending.

It's this last part that gets me. An awful lot of rich people depend on investments for their income. Most of that money is presumably invested in businesses that depend on customers with money for their profits. If those businesses run out of customers with money, what do you suppose happens to those investments?

Like I said: Stupidity has the advantage of being considerably less subjective. We're looking at stupidity on a major, major scale.

 

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EXCELLENT POST. RATED!

The fishing analogy works perfectly! I find that nature analogies are often the easiest way to explain complex phenomena. They are immediately understood by the vast majority of the people, even by children.

If I could rate this post more, I would!


8)
Thanks.
I've been thinking about this analogy for a while. I actually used it recently as part of a comment on Kemstone's blog and realized it was useful enough to put more front and center than buried in a Comments section.
Front page!! A must read.
Excellent beyond measure dear.
I tip my hat for such a well thought out post.
Yes indeed here. Yes!!
Jonathan and Mission,
Thank you both
You've done it again, Kosh. You have found an analogy that anyone who knows how to read can understand. If a person who is confused (read stupid) reads RW's recent post explaining that the conservative-led decisions to spend the Social Security funds on other government obligations is the real reason SS is "running out of money;" and then they read this post, if they can't see the truth emblazoned on the wall, they are hopelessly stupid.

Lezlie
Lezlie,
Thank you.
My second EP ever. Hot topic, I guess.
This is the best politics/public policy post I have seen on OS.

Wish I had an uber-rate button.
If only our leaders could think as clearly as you do.
YES!!!
Thank you, thank you, thank you.
I agree with almost everything. Almost. I really think that with people living longer, that the age of the Social Security recipient should rise by two or three years. It's just common sense and I'll be bar-b-qued for saying it while being a liberals liberal.
Scanner,
Not barbecued by me. Sixty-five used to be old. Now it's not. If we could end the argument about the system's solvency by delaying full benefits by a year or two I'd do it in a heartbeat. I'm not saying I'm completely unwilling to make sacrificies; I'm saying we shouldn't be privatizing Social Security or seriously reducing benefits because the rich want another tax break and want to charge us for it.
I don't get why the Republicans are even bringing up privatization of Social Security. It crashed so badly when Bush tried it. The electorate hasn't changed. They'd be wise to shut up about it and move on to something else inane.
John Blumenthal: The GOP will get Obama to propose it, methinks, in an effort to get him to "sell this" to Democrats and the American People. Perhaps they feel he is a Kapo or something, and is more likely to successfully lead his followers to the slaughter
That is a brilliant analogy. Well done. BAM.
MK,
Thank you and glad you like it.
Your government will never do anything good for you. You keep trying to reform it, but it really doesn't care about you and it never will. It is also not responsive to your concerns. You are irrelevant to it.

Like the folks living under Batista. The only thing was, he made no pretext of being democratic. The US gvt does. Yet, it is even more authoritarian and murderous than Batista. Ironic, really...
I'm waiting for the day I can address you as Senator.
Kosher, may I steal this and send it to all my senators and reprehensibles, I mean representatives?
Your entire disertation was excellent, informative and on the money(good pun).
KS, do you really think the ones at the top of the food actually give a damn about the rest of us and our incomes, disposable or otherwise?
Maybre some of them realize what would occur if our disp. income dried up butt, I believe that the mojority of them are too drunk with the excersize of their money rake to take the time to even so much as attempt to understand the consequences, consequences which once were long term and now are becoming more immediate.

Here in WI we have indians who are allowed to spear fish.
They have casinos, homes, massive welfare and these "rights" to spear fish, fish that they claim they need for sustenance so that they don't go hungry.
WI is a tourist state. There are many tourists from IL, Ind and MN.
These people used to come here in droves with handfuls of disposable income.
Now, as a direct consequence of the fish spearing, the limits for non-indians has been reduced to 3 , and in some cases 1 or limit4ed to catch and release.
These tourists would come up here to take home moslty walleye, a fish which is delicious.
They are niot so ready to come here and spend that disposable income where they can only have 1 or 2 of these walleye.
As an analogy to the Wall St bankers, et al, I am one of many who have seen the spearing if these irreplacable walleye only to see them discarded., thrown away to rot.
So, match that up with the yachts and overindulgences of the banker crowd and, what do you have.
Someone or something is needed to stop the plunder of Social Security, i.e. the walleye.
I am 71 and have paid into SS for all those years.
I am not the only one who is angry about the fiscal irresponsibility of the plunderers.
I like fish! Everybody likes fish! Making more fish makes sense, but the battle isn't about what is the right thing to do, it's about manipulating the system. If they can convince the masses that SS is killing us, they can have now money rather than wait a long term money. It's all about manipulation and greed and these folks are the best in the world at it.

BTW, this is and excellent piece of work and I'm on your side. I suppose we somehow have to out-scream the other side.
Cuss,
Thank you, and this is a bizarre coincidence, because I woke up this morning from a dream that I was about to become a Senator, I didn't find out how. Also, I'm not what you'd call electable.

TGD,
By all means. Please steal it for your Reprehensibles.

XJS & Me & MR,
I'm not expecting the people at the top of the food chain to care about us, I'm expecting them to care about their own money. What they're doing, in the long run, risks their own money pointlessly because most of their investments can't survive without a continuous stream of money from us. If we can't afford that continuous scream, many of them are screwed. Like I said, morality might be somewhat subjective but stupidity isn't. What they're doing seems to me to be both immoral and stupid - the worst of both worlds.
I like this very much and agree with you. I don't have a problem with class warfare at all. That war has been waged by the upper classes against the rest of us for the last 30 years. How about taxing money earned from work at a lesser rate than money earned by sitting around collecting dividend checks?
You made an excellent argument for simplifying the tax code. Using write-offs and shelters (also called tax farming) only works if the tax code is full of loop-holes, exemptions, deductions and complexity.

We should attack the issue at its source -- the tax code. The US tax code has 3.8 million words. At the standard 250 words per page, that is 15,200 pages. How much of that is necessary?
The fishing analogy is brilliant and I fully intend to use it myself.

Congrats on the well deserved EP!

And thanks for the plug :-)
Politicians have been messing with (steeling from) a regulated “widows and orphans” fund, i.e. Social Security system all along. They like to use the term “lock box” but they have the key and have borrowed the system into debt along with the rest of their so called budgets that are so filled with pork that sausage is all they produce from the “Hill”. ‘Nuff said -R-
Janice,
Makes sense to me.

Mal,
The tax code is one way the share of who pays what is manipulated. Complexity is there to hide details and we all know the gist of the details that are hidden.

Kem,
You're more than welcome to use the analogy; in fact, I wish you would. Thank you in general, and of course I used it first on your blog.

Sir Robert,
Al Gore was the last candidate who really talked about a lockbox. Unfortunately, the Supreme Court handed his opponent the Presidency, and we all see where that led.
You are very good with parables. This is both informative and very easy to understand. You might think about writing a letter to your congress man with the same said content so that it can reach ears that really need to hear this message.
Excellent analogy. As a Canadian who has grew up in the days of Pierre Trudea's "Just Society" and who also has lived in more than one European country, your argument makes good sense to me. However, please forgive me if I sound stupid by asking the following: Is it enough to restock the lake if the commercial fisherfolk have an already much bigger advantage by having bigger boats and a lot more nets and poles?

Nonetheless, excellent writing. Clearly explained. R
Veronica,
Thank you

AIA,
I haven't, though this might be worth sending in some form.

Lizw9,
It may not be enough, but it's the only feasible step in this analogy that's obviously in the right direction. If there are more fish, more people will be able to catch them.

The analogy is useful at making one point but it has its limits. Personally, I think it is both more moral and more efficient for there to be more equal access to earnings, with the understanding that what I favor is equality of opportunity, not equality of results. To go back the analogy for a moment, I'd like to see more equal access to fishing equipment; size of the catch is based at least somewhat on effort and should continue to be.

At some point the analogy stops being useful (or at least gets ambiguous and confusing), particularly when talking about the role of middle class earnings in upper class and business prosperity. Businesses need customers and educated employees. Real incomes for the middle class haven't risen in constant dollars since the Nixon administration, but real expenses have, particularly in the areas of housing, medicine, higher education, and more recently in banking (such as exorbitant credit card interest rates when you get behind). Middle class families have adjusted, first by going from single-earner to dual-earner households, then by increasing debt, and in some cases by allowing adult children to move back. The ability to adjust has now been strained to the breaking point, with the result being that ordinary people have less real disposable income. That means they have less to spend with American businesses, who have to cut back, often by laying people off, leading to further shrinking of the customer base. While all this is happening to the national customer base, it's simultaneously happening to the national tax base for the same reasons. GDP might not immediately reflect all of this as the same money is being redistributed upward, with the rich getting a growing share; the trouble is that the rich can't and don't spend money in as many places, so fewer businesses are ultimately supported when money is redistributed upward, resulting in a shrinking economy, which is why wealthy nations have big middle classes and Third World nations have heavy income polarization with a whole lot of poor people and very few extremely rich. That's the direction we're currently moving in, toward Third World demographics.

Where the fishing analogy becomes useful is from the perspective of the rich. It is a good way to explain to them why they need to share more wealth with the rest of us In Order To Maintain Their Own Wealth. We who aren't rich already have ample incentive to stop the insane income polarization in this country (which I've blogged about multiple times here); what makes my angle unusual is that I don't see people telling the rich that they also have ample incentive to stop it because it can ultimately destroy their wealth.

I'm not pushing morality; enough people do that already and, most of the time, it doesn't work. I'm pushing self-interest.
Very logical and well laid out. Too bad long-term thinking is so out of style...
Blue,
Thanks, and I contribute what I can

Joba,
Sure savings matter, but you're not going to see savings if everyone is tapped out. Also, savings may matter to the country but middle class savings don't necessarily matter as much to the rich who are competing with the middle class for financial resources, so I'm concentrating on how middle class spending is beneficial to those whose actions are quickly killing it. Sorry to be confusing - my overall point is that the rich, who are for the most part calling the political shots, are calling shots that are, in the long run, hurting their own finances.
Thanks, Joba. The EP shouldn't make any difference on the comments.

This actually follows a pair of posts by two other guys I follow: Kemstone and Rw005g, both of whom really understand this topic. Both wrote about Social Security and how conservatives are trying to undermine it by making it appear to be a lot less solvent than it actually is; one of them also got an EP on the topic. My post is not quite as focused on Social Security in particular, more on SS as part of a larger pattern of (in this case attempted) redistribution of wealth.

What did I have to add to what they'd already said? Well, to be truthful about it:

Fish

Well, OK, that's literally true, but to be a little more truthful about it:

A handle

I like handles. They seem to help people grasp things.

In this case I provided a slippery, slimy, cold, wet handle that still seems to be, paradoxically, pretty graspable.

Maybe not so paradoxically. This is not, after all, a pleasant topic to grasp, though it might become one if an obscure post such as this actually affected policy.

It's nearly one in the morning here and I see that I'm milking this analogy for all it's worth.

Damn. It must be late. I'm trying to milk fish.
Maybe, but it's hard to argue for the current system. The IRS tax ombudsman estimates that Americans spend 6.1 billion hours filling out tax returns. That's the equivalent of 3 million full-time employees, when the Federal Gov't has 2.1 million employees.

In contrast, few people, rich or not, like the thought of their hard-earned money being redistributed to others. I sure as hell don't.

My experience with the lower level of the rich is that most are people who looked at what it would take to earn the lifestyle they wanted and did it. These are not people who created the system, nor who inherited wealth. They worked hard to reach the place where they are.
I thought you attributed no more than the loss of a few hundred thousand jobs to outsourcing Kosher. Proposing to subsidize the establishment of any industry which will help increase Americas fading manufacturing base will benefit Social Security and its future viability. A government that looks to economic solutions in the reformation of its Social Services while terrorizing the earth with a military whose resources are unlimited is absurd and should be overthrown by that very military in the interest of self preservation.
Malusinka,
Firstly, simplification would be a great idea for all sorts of reasons.

Secondly, the problem isn't the lower end of the rich, it's the upper end. The higher up you go, the more disproportionate distribution gets, I mean as a proportion of overall American wealth. For those who are self-made, the estate tax doesn't make all that big a difference; the fight here is on behalf of the super-rich.

Thirdly, redistribution is already happening - but in the other direction. When major oil companies get subsidies, pay zero in Federal taxes, and have annual profits measured in the billions, that says middle class money is going to the rich end of the scale, not the other way around. When Warren Buffet points out that he is taxed at a lower rate than his secretary is (and he thinks this is as crazy as it sounds), that tells you that redistribution is absolutely taking place. Please don't fall into the trap of thinking the argument is Yes or No on redistribution.

Jack,
I don't believe I've ever said that outsourcing was limited to a few hundred thousand jobs. If I were arguing about NAFTA, which isn't an argument I think I've ever had on OS, I would say that Mexican imports are more disproportionately from the US than most other countries if not all of them, which means that jobs that moved there also created some here. The trouble is that the jobs that moved South were concentrated while the jobs created North were very spread out. Fifty jobs from a factory moving South is a whole lot more conspicuous than fifty jobs created here at fifty different companies as a result of increased exports. I'm not saying that exporting manufacturing jobs is a good thing but I am saying that some of the net losses are smaller than they look.

That being said, I don't like any jobs leaving, particularly manufacturing jobs. There are a lot of reasons they're leaving and we should be more active at addressing those reasons. I outlined one remedy in investing in growing industries. Changing tax policies such that companies that remain here are given better rates than companies that leave would be a good and rather obvious idea -that includes both manufacturing and where they're headquartered. If you're in theory based in the Caymans, you should be taxed higher, period.

You're right about the military if from no other standpoint than spending. Our annual spending is something like five times the runner-up, which I believe is China. We're not looking at a USSR any more; that says we've either got way too big a military or we're impossibly inefficient. In either case, our resources are disproportionately in the wrong place. There is no reason on Earth our spending should be so much higher than that of the European Union. Higher is OK, but not to this extent. Some of these people should be carrying more of their weight.

The statement about the military overthrowing a government for supporting it too heavily is silly to the point where it looks like you're venting more than thinking. That's OK as long as you know that's what you're doing.
I believe I recall you once saying that outsourcing only accounts for the loss of 300 thousand American jobs but perhaps I am mistaken or maybe you have changed your mind about that. There is nothing funny about the military resting control of a corrupt and inefficient government from the hands of the criminals who run it unless you are Mel Brooks filming ‘Springtime for Hitler in Germany’ that is the way these things traditionally end up Kosher.
good article. Rated.

Just one problem we have to solve before we can get to work- we have to find some way of disempowering or at least reducing the power of influence of the coporations. Without that part taken care of first we will pass no meaningful legislation on this or any other subject.
Has anyone mentioned cutting defense spending yet? Some economists have said that you'd have a bigger boost to the economy if you just put a trillion dollars in a big pile, and let anyone who wanted to take as much money as they could.

Defense spending costs our country more than $800B a year, mostly on stuff that's meant to go obsolete or blow up. In fact, the NY Times has an interactive deficit reduction game based on the Simpson-Bowles Commission, and you can eliminate all deficits -- just by soaking the rich and cutting DOD spending. Every other way of setting loose money from the Federal budget is just small beans.
ONL: that is a WONDERFUL start.

I actually just finished reading an essay from 1972 discussing how military spending causes inflation and is the #1 reason why inflation is outpacing increases in wages.

Funny how we have forgotten all these arguments. Not to mention the reason that military spending is the #1 reason we are looting Social Security.
Jack,
I don't remember the outsourcing comment, unless maybe it was specifically about call centers as opposed to manufacturing. I did hear figures on that once and they were lower than expected. If it wasn't on that, you probably have me confused with another blogger.

Ira,
I've written about that topic extensively before. In fact, one of my posts was actually a satire about corporate influence. The link is:
http://open.salon.com/blog/koshersalaami/2010/11/04/running_for_congress_with_a_new_third_party (You might have to cut and paste.) In any case, it's a point I've made repeatedly, so I absolutely agree.

Lefty,
That topic has come up in the Comments. I addressed it a few comments before this one. I absolutely agree.

Rw,
I think inflation was a bigger problem in 1972 than it is at the moment, at least overall inflation. Certain areas of our economy have gotten way more expensive since then, far outstripping inflation, and I think it's those areas that have killed disposable income for the middle class. As I see it, those areas are: Housing, Medicine, Higher Education, and, most recently, Banking (like banks charging 30% interest if you're late on credit card payments, which a generation ago would have been defined as usury). The Banking issue in particular goes back to Ira's comment about corporate influence but you and I have written so much about this issue that it isn't exactly news to us.
Sal: radical, short-term inflation was "bigger" I think in the 1970s, because it was a rapid, noticeable shift.

However, many economists have noted that, over time, the Western economies in general have experienced a long, 60/70 year process of gradual price-inflation that has gradually eaten-away at real-wages. Food, especially, has been rising relative to incomes.

Look at comic books. When I was a kid, they were 50 to 65 cents. Now they average 2-3 dollars. This is an almost 200-300 percent increase in price over a span of 20 years. (my math sucks so correct me here if I am wrong about the percentages).

However, the principle is apt.

People got more nutso over inflation in the 1970s because it was rapid and noticeable. This long-term inflation has been less noticeable because it is gradual.

Dr. Ravi Batra wrote a good book about this, called "The Great American Deception: What Politicians Won't tell you About our Economy and Your Future." He is a "radical centrist."

Its a good read.
Love the fishing analogy. The rest is admitttedly over my head. Excellent piece.. Call this unrelated if you will, but

Bristol Bay Alaska has the largest wild salmon ecosystem anywhere. It is also one of the world's largest deposits of gold. Million of sockeye salmon navigate their through Bristol Bay's lake and river.

According to http://www.thechangingworld.org/ ..."Trace amounts of copper as low as 2 parts per billion in the water can destroy a salmon’s sensory guides, so that it loses the homing instinct that helps it return to its spawning grounds within the Bristol Bay watershed."

In this case, it's not just a matter of restocking the fish. Once we have destroyed their ability to self sustain.. they're gone.

The logic here being the gold is worth far more annually than a bunch of fishing-tourist yokels.
Assuming, of course, that the sockeye don't have other commercial value.

Joba,
I don't blame anyone for taking advantage of existing law. I blame them for lobbying for laws and making political contributions leading (perhaps a little indirectly) to these laws. I don't even really blame them for acting out of self-interest, though I do blame them for acting out of short-term self-interest. My issue is that I don't think the current tax climate serves even their self-interest in the long run because whether they're corporations or rich individuals who have invested heavily in corporations, corporations can't prosper without customers with money. What they're doing is decimating their own customer base. Sure it hurts us, but it also hurts them. That I blame them for. To use an analogy I've used elsewhere: If you get a thinner slice of a bigger pie, you may very well eat better. Stop concentrating exclusively on the size of the arc of your slice and start concentrating on making the pie grow.
That was excellently written. The way you used the analogy added to the overall impact of the idea that you wanted to convey.

I learned so much. :) Thanks.
United HC:
Thank you. Glad you stopped by because I hadn't reread this post in a long time. I have trouble remembering where I said what.

It's all about analogies and metaphors. Paint a picture. Easier to grasp and harder to forget that way.