133/365 – Social Security’s Big Lie

There is no trust fund for Social Security.  Keep that fact in mind whenever you hear your government bloviate about when said “fund” is going to run out of money.  It hasn’t got any money to begin with.  Social Security has always been a pay-as-you-go tax, not an investment.

Here’s how it works: you and your employer each pay 6.2% of your income into the trust fund (formally known as OASDI, the Old-Age, Survivors, and Disability Insurance program, and you may see “FICA” on your pay stub – that’s the Federal Insurance Contributions Act, the federal law that authorizes collection of Social Security payroll taxes), up to an earnings level of $106,800.

In 2008, FICA’s take was $672 billion, while $615 billion was paid out.  The surplus, $57 billion (minus administration costs of $5.7 billion) went into the fictitious trust fund.  And what is this so-called “trust fund”?  It’s a file cabinet in Parkersburg, West Virginia, full of massive IOUs from the government to itself.  (Thanks to the Associated Press article today that pointed this out.)  The money has already been spent to fund other government programs, and these bonds were issued by the U.S. Treasury to acknowledge the “loans.”  The feds even credit “interest” to the “debt,” some $116 billion in 2008.  But neither the interest nor the principal of the trust fund debt can be paid any other way than raising taxes or selling still more debt.

It worked out that way because the excess funds FICA has been collecting since 1977 can only be invested in U.S. Treasury bonds, and that total amounted to $2.4 trillion in 2008.  (Technically, the excess could be invested in other investments, but the thinking is that this would distort the markets.)  So when you hear projections that Social Security will run out of money by 2037, they’re talking about cashing in all those bonds.  In reality, Social Security will pay out more than it collects starting in 2017, another eight years.  GULP!

Actually, I’m not worried.  As I noted, they FICA tax stops at $106,800.  What’s up with that?  Raise the income ceiling and we’ll be fine.  But what should really happen is that we should demand that our government stop lying about this and keeping phony accounts.  Combine the income tax with the FICA and Medicare taxes, call that “national community support tax” and just be honest about where the money is being spent.

PICTURE OF THE DAY

The Wisconsin State Capitol from State and Johnson Streets and the Museum of Contemporary Art

The Wisconsin State Capitol from State and Johnson Streets and the Museum of Contemporary Art

125/365 – We’re all connected, commune or not

 

A shipment of old polictical gas for recycling.

A shipment of old polictical gas for recycling.

“If I had lived back then, I’d have been a Communist, too,” said Dearest as we watched something about Jewish cooperative apartments in the ’30s.  I thought a minute, then realized I had no longer had any idea what Communism originally stood for, even though I did a semester of “The Economic Theory of Socialism” in college.  I mean, since Stalin, Mao , and Pol Pat shed oceans of their own people’s blood in the name of “Communism,” failing to achieve even a hint of a worker’s paradise, how can anyone not spit at the very mention of this thoroughly discredited political philosophy, as my adopted Jewish grandmother Sophie used to spit at the TV whenever a swastika appeared?

So I looked it up, and it actually sounds great!  “Communism (from Latin communis = ‘common’) is a socioeconomic structure and political ideology that promotes the establishment of an egalitarian, classless, stateless society based on common ownership and control of the means of production and property in general.” [Wikipedia]

The trouble has always been in making the transition from private property and bourgeois control.  Mostly commies have simply killed the capitalists and any others who resisted common ownership.  Since that’s out, I thought of another way, an argument that can’t be resisted yet is as peaceful as a sunny day: We are all connected, and everything you do affects everyone else.  You can’t opt out of the environment, you can’t divorce yourself from the human race.  Every decision you make, every action you take, affects the common good.  You can’t leave the commune.  We all share the same planet, the same atmosphere, the same forests, and if you actions cause harm, the commune should move to correct you – by nonviolent means if possible.  (See this is probably when the Stalinist took over, saying, “Ah hell, just shoot ’em!”

So welcome to the commune; there is no escape, so let’s learn to work together.

84/365 – Gas hose

dscn1556

 It’s all about oil. I think most of us know that instinctively.  Our leaders talk about weapons of mass destruction, democracy, the Taliban, Al Qaida, and the rights of women, but underlying all that is the need for oil.  

  • Right now and for the foreseeable future, two of the most important pools of oil for the world economy are in the Persian Gulf and Central Asia.
  • “We” (meaning the industrialized world) can’t afford any disruptions to the oil supply.

Therefore, anyone or anything that threatens access to this oil must be stomped on quickly and decisively.

It’s easy to see the Persian Gulf situation, like when the Iraqi army set Kuwait’s oil fields on fire.  But Central Asia isn’t as clear a picture. 

You’ll probably need a map, but take my word for it that  today Central Asia consists of the five former Soviet republics of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan. But they got their “-stan” names from ancient Persia,* back at the time of Alexander the Great. 

These “Stans” have oil, lots of it, and no way to get it out.  Sure, there are some pipelines going west to Europe, but they have to go through some troublesome areas south of Russia and north or Iraq/Iran which are unstable.  It would be far better to go south to the Indian Ocean, and that way cuts right through — you can probably guess it — Afghanistan. China is all over Tibet because it borders the oil areas. So that’s what it’s all about.

 * (From Wikipedia) During pre-Islamic and early Islamic times, Central Asia was a predominantly Iranian region. Among the ancient sedentary Iranian peoples, the Sogdian and Chorasmians played an important role. Ancient Iranian culture also has an important role in the history of some parts of the region and Tajiks, Pamiris and other Iranian groups still are present in the region. After expansion by Turkic peoples, central Asia became also the homeland for many Turkic peoples, including the Uzbeks, Kazakhs, Kyrgyz and Uyghurs, and Central Asia is sometimes referred to as Turkestan.

70/365 – Bernie* stole from you, too

Doin' the prep walk with Bernie. (And speaking of illegal, do I violate someone's copyright by posting a picture I took of their picture?)

Doin' the "perp walk" with Bernie. (And speaking of illegal, do I violate someone's copyright by posting a picture I took of their picture?)

So Bernie* is pleading guilty to fraud.  What else is new? (*I call him “Bernie” because I feel like I know him, he’s such a smooth operator, such a massive, unbelievable liar, yet he could be anyone’s uncle.)

Disgraced 70-year-old financier Bernard Madoff and his decades-long Ponzi scheme “plunged some investors who thought they were wealthy into poverty and forced numerous charities and foundations to close,” as Amir Efrati and Robert Frank put it today’s Wall Street Journal.  They go on in an especially felicitous phrasing of our present situation, “As a result, Mr. Madoff has become an especially stark symbol of the financial crisis, in which millions of Americans lost their homes to foreclosure, the banking system is wobbling, and stocks are in their most dizzying descent since the Great Depression.(emphasis mine, I really like their phrasing)

Mssrs. Efrati and Frank have the sequence right: foreclosures cause wobbly banks which causes stocks to drop.  But Bernie has nothing to do with it. He didn’t sell any mortgages. It’s just that the scary times caused too many people to want to cash in their investments with him, and of course he had no investments to sell – all the money had been paid out to early comers to the scheme. So in that sense, his scheme should not be equated in the common mind with the crisis.

But then it occurred to me that Bernie had actually screwed everyone with his cheating.  Here’s why: What if that $64 billion (or whatever) had actually been invested in something productive, like a business that made something you use?  Or even in Treasuries, so it was helping to support the national debt?  But no, it all went back to other rich people as fake earnings, and yes, a few charities, but it built no businesses and thus created no wealth.  See, that’s what the poor people forget – the rich have their money invested in something that produces more wealth, not just in gold-plated toilet seats (which I imagine need built-in heaters, or they’d be very cold!).  And when you try to take too much of their earnings in taxes, they go invest somewhere else where they get a better deal.

Anyway, thanks Bernie, and screw you – schmuck who will die in prison.

47/365 – Perspective on the economy

We'er building hospital additions and academic buildings all the time. The contruction crane is our stae bird.

We're building hospital additions and academic buildings all the time in Madison. The contruction crane is our state bird.

At last, I find some context on the current downturn in the economy.  Is our present economic situation really comparable to the Great Depression?  Apparently not, if we can believe Bradley R. Schiller, economics professor at the University of Nevada, Reno, who had a piece in the Wall Street Journal today.(I’d give you a link, but it’s paid content and the link would only last a week.)

He wrote: “Our current economic woes don’t come close to those of the 1930s. At worst, a comparison to the 1981-82 recessions might be appropriate. In the last year, the U.S. economy shed 3.4 million jobs. That’s a grim statistic for sure, but represents just 2.2% of the labor force. From November 1981 to October 1982, 2.4 million jobs were lost — fewer in number than today, but the labor force was smaller. So 1981-82 job losses totaled 2.2% of the labor force, the same as now.

“Job losses in the Great Depression were of an entirely different magnitude. In 1930, the economy shed 4.8% of the labor force. In 1931, 6.5%. And then in 1932, another 7.1%. Jobs were being lost at double or triple the rate of 2008-09 or 1981-82.”

Here’s his comparison of unemployment rates: 7.6% now, 10.8% at the 1982 peak, and 25.2% at the 1932 peak.

How about decline in the gross domestic product (GDP)? Well, GDP “actually rose in 2008, despite a bad fourth quarter. The Congressional Budget Office projects a GDP decline of 2% in 2009. That’s comparable to 1982, when GDP contracted by 1.9%. It is nothing like 1930, when GDP fell by 9%, or 1931, when GDP contracted by another 8%, or 1932, when it fell yet another 13%.”

Then there are the bank failure stats: A couple of dozen in 2008, compared to 3,000-plus Savings & Loan  failures in 1987-88, and over 10,000 bank failures in 1933.

Stocks? Try a nearly 90% devaluation in the early 1930s.

What I’m getting at is not meant to demean or diminish present-day problems. Everyone who is unemployed is worried and the rest of us don’t know what to think of the future.  But let’s not suffer needless worry because inflated political rhetoric  makes things seem way worse than they really are.  A little cheerleading from the “bully pulpit” would be appreciated. I mean, who even remembers the 1981-82 recession?

[Schiller is the author of The Economy Today (McGraw-Hill, 2007).]