The Incredible Shrinking Economist continues to waste away

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susupply

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Aug 8, 2001, 10:26:54 AM8/8/01
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http://www.nytimes.com/2001/08/08/opinion/08KRUG.html

<<-------------------------------------------------------
August 8, 2001

RECKONINGS
Nothing for Something
By PAUL KRUGMAN

Recently I gave the "bipartisan" commission on Social Security reform -
many of its members and staff are actually associated with the
ultra-conservative Cato Institute - a very hard time over its interim
report. Was I unfair? No. It's even worse than I thought.

I had been trying to come up with a reductio ad absurdum, something that
would demonstrate how nonsensical the commission's analysis is. But I
needn't have bothered; a commission member, Thomas Saving, did the job for
me, in a presentation he gave at Cato. He repeated the report's claim that
the trust fund accumulated through decades of Social Security surpluses is
no help when it comes to paying future benefits. But he was more specific:
The trust fund is worthless, he said, because it is invested in U.S.
government bonds. If it were invested in German bonds the trust fund could
indeed be used to pay benefits.


Let's see: Last year the Social Security system collected about $90 billion
more in payroll taxes than it paid in benefits. Mr. Saving says that if that
money had been invested in German bonds it would have made a real
contribution to the system's future; but because it was used to buy U.S.
bonds it somehow disappeared into a black hole.


Is he saying that last year's Social Security surplus did not enhance the
government's future ability to pay benefits? If so, he's just plain wrong.
Last year the government paid off more than $200 billion in debt to the
public, largely because of the Social Security surplus. And lower debt
implies lower future interest payments, which means that the government can
pay more in benefits without raising taxes or cutting other spending.


Or is he saying that future administrations will not allow the Social
Security administration to apply the interest on its U.S. bonds to benefit
payments? That's possible; but future administrations could also, with equal
ease, snatch the interest on German bonds and use it for something else.
Neither prospect seems likely.


Mr. Saving is a competent economist - he's a professor at Texas A&M - but I
can't see any way to make economic sense of his argument. It makes sense
only as part of a political strategy.
-------------------------------------------------->>

Let me help the good professor. Saving was undoubtedly making the point
that it would be the German government raising taxes on the German taxpayer,
or cutting spending that it would be otherwise making for the ostensible
benefit of Germany that would pay the SS benefits of Americans.

SS would be cashing in I.O.U's from Germany, rather than, in Grinch
parlance, I.O. Me's. A point understood by honest SS privatization foes
like Robert Eisner.

Patrick

susupply

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Aug 8, 2001, 1:58:23 PM8/8/01
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http://www.washtimes.com/op-ed/20010808-99737819.htm

<<------------------------------------------------
Robert Borosage and Roger Hickey - two longtime left-wing policy operatives
closely associated with the unions, Sen. Ted Kennedy and with former Clinton
pollster Stanley Greenberg - have been contacting columnists and reporters
to push the message that Mr. Bush's commission (co-chaired, incidentally, by
that notorious Republican sympathizer - former Democratic Sen. Daniel
Patrick Moynihan) has become "a tool of the Cato Institute."

On June 11, during one of the commission's meetings, they briefed the press
on this "charge."

On July 24, Democratic Rep. Robert Matsui - his party's point man
assigned to kill the bipartisan commission findings - also held a briefing
during a commission meeting and also accused that commission of being "a
tool of the Cato Institute."

This week, they drew first media blood in the liberal magazine New
Republic, which ran a tendentious article, "In the Tank," that portentously
croaked: "If the public thinks Cato is really running the commission, the
crusade to privatize Social Security is probably dead."
------------------------------------------------------->>


susupply

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Aug 8, 2001, 2:43:33 PM8/8/01
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Paul Krugman says: "I had been trying to come up with a reductio ad

absurdum, something that would demonstrate how nonsensical the commission's
analysis is."

How about something like: Prof. Krugman's income exceeds his spending for a
number of years. He gives his surplus to Mrs. Krugman to invest in German
government bonds. However, she instead uses the money to buy a few more
dresses each year, always being careful to write an IOU for what she spends.

Comes the day the Krugmans are ready to enter their twilight years (hastened
by the ultra wealthy Cato Institute buying the New York Times and firing all
its columnists), and a fly on the wall hears:

Prof. K: Dear, where are those German bonds we've been investing in? Now
that I don't have a job we'll have to cash them in to have something on
which to live.

Mrs. K: I've been keeping the trust fund in a shoe box in our closet,
Honey.

Prof. K: (Rummaging around) Hey, there's nothing in here but a bunch of
IOU's!

Mrs. K: Of course, Darling. I've read your columns all these years, and I
know the IOU's are an asset, backed by the full faith and credit of the
Krugman family. No different than those silly German government bonds you
always talk about.

Prof. K: (Incredulously) But we'd have earned interest on the German bonds!

Mrs. K: Oh, that's all you're worried about? Here's another IOU for 6%
annual interest, Sweetheart. Now let's go out for dinner.

Prof. K: With what money? You've spent everything I saved.

Mrs. K: No, no, don't you remember your own columns? If I hadn't spent our
surplus, I'd have had to buy all my dresses on Mastercard; I was really just
paying down our debt. Think of all the interest payments I saved us.

Prof K: Who's going to give us any money for these IOU's?

Mrs. K: Why the kids, of course. Don't worry, they can afford it.

susupply

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Aug 9, 2001, 10:28:28 AM8/9/01
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http://www.washingtontimes.com/commentary/20010809-21242106.htm

<<--------------------------------------------------
Trained eye on Social Security

Donald Lambro

The first person scheduled to testify before President Bush's Social
Security commission this month will be the chief architect of the
government's largest pension plan whose funds are privately invested in
stocks and bonds.

In the first sign of the direction the 16-member, bipartisan commission
wants to take Social Security reform, Co-Chairman Daniel Patrick Moynihan
wants Roger Mehle who crafted the investment plan in the late 1980s to tell
the panel how the Thrift Savings Plan works. And whether it can become the
model for partially privatizing the troubled New Deal-era retirement
program.

A former Treasury official in the Reagan administration who later ran the
Federal Retirement Thrift Investment Board, Mr. Mehle's planned appearance
before the panel on Aug. 22 tells us a lot about the commission's thinking
on the sweeping reform plan that Mr. Bush has asked the commission to
devise.

With more than 2.5 million federal employee investors, the Thrift Savings
Plan that Mr. Mehle designed in 1986 is the largest defined contributions
pension plan in the world. Under this plan, government employees including
members of Congress and their staffs invest in blue chip, S&P 500 stocks,
U.S. Treasury bonds and corporate bonds for their retirement. More recently,
the government's matching pension plan expanded its employee investment
options into a small cap stock fund and an international stock fund.

In addition to Mr. Mehle, the commission also plans to hear from a top
official who runs the giant TIAA-CREF private stock and bond fund for
college and university employees which boasts low expenses and a high rate
of return.

[snip]

Worried that the Bush plan is gaining support among younger voters, women
and minorities, House Democrats headed home for the August recess last week
armed with prewritten news releases, op-ed columns and other broadsides
accusing the president of wanting to cut Social Security benefits, wanting
to raise the eligibility age and wanting to dismantle the program.
--------------------------------------------------->>


David Lloyd-Jones

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Aug 10, 2001, 7:24:38 AM8/10/01
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"susupply" <susu...@mindspring.com> wrote

>
> Let me help the good professor. Saving was undoubtedly making the point
> that it would be the German government raising taxes on the German
taxpayer,
> or cutting spending that it would be otherwise making for the ostensible
> benefit of Germany that would pay the SS benefits of Americans.
>
> SS would be cashing in I.O.U's from Germany, rather than, in Grinch
> parlance, I.O. Me's. A point understood by honest SS privatization foes
> like Robert Eisner.

* * *

Patrick is a good example of a problem of our time. There are Republicans
who can count up to one, and there are Republicans for whom that is rather
too large a number.

If all the money were invested in German bonds, the corresponding need for
"all that stuff," (a technical monetary term I use for this moment only)
would have to come out of somewhere else. Taxes? Other bond issuances?
Inflation?

Who knows? Patrick doesn't know: he's just read a newsletter from Cato, so
he's still catotonic.

-dlj.

jim blair

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Aug 19, 2001, 11:15:02 AM8/19/01
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David Lloyd-Jones <dav...@sympatico.ca> wrote in message
news:9DPc7.47480$jA2.4...@news20.bellglobal.com...
Hi,

???? If I were a young worker in the US in 2030, it would matter a great
deal to me whether the money paid to SS retires in the US was being
provided by taxes levied on me, or by taxes levied on Germans. Isn't that
the issue here?


Mason Clark

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Aug 19, 2001, 4:51:59 PM8/19/01
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On Sun, 19 Aug 2001 15:15:02 -0000, "jim blair" <jeb...@facstaff.wisc.edu> wrote:

>> If all the money were invested in German bonds, the corresponding need for
>> "all that stuff," (a technical monetary term I use for this moment only)
>> would have to come out of somewhere else. Taxes? Other bond issuances?
>> Inflation?
>>

>> -dlj.
>Hi,
>
>???? If I were a young worker in the US in 2030, it would matter a great
>deal to me whether the money paid to SS retires in the US was being
>provided by taxes levied on me, or by taxes levied on Germans. Isn't that
>the issue here?
>

Jim, would it matter to you that if the SS money was invested in German
bonds you would have to pay double now? If the SS money now goes to
Germany, the U.S. must now re-raise that amount in taxes or bond sales, after
already raising it via the FICA tax money sent to Germany.

David told you about this, but you didn't read what he typed.

Mason C

David Lloyd-Jones

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Aug 19, 2001, 4:44:41 PM8/19/01
to

"jim blair" <jeb...@facstaff.wisc.edu> asks:

> ???? If I were a young worker in the US in 2030, it would matter a great
> deal to me whether the money paid to SS retires in the US was being
> provided by taxes levied on me, or by taxes levied on Germans. Isn't that
> the issue here?

Jim,

Patrick's notion is that we could buy a ton of German bonds now without it
having any effect on the US economy right now.

If the Social Security Administration were to spend a dollar on German
bonds, the rest of the US government would have to find that dollar
somewhere else -- to make up for the SSA not buying that one dollar's worth
of Treasury paper.

That is the sense in which Republicans are apparently not capable of
counting up to one.

-dlj.


susupply

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Aug 20, 2001, 10:23:04 AM8/20/01
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"David Lloyd-Jones" <dav...@sympatico.ca> wrote in message
news:wJVf7.2907$Nc3.4...@news20.bellglobal.com...

> Patrick's notion is that we could buy a ton of German bonds now without it
> having any effect on the US economy right now.
>
> If the Social Security Administration were to spend a dollar on German
> bonds, the rest of the US government would have to find that dollar
> somewhere else -- to make up for the SSA not buying that one dollar's
worth
> of Treasury paper.
>
> That is the sense in which Republicans are apparently not capable of
> counting up to one.

You should introduce your wife to Mrs. Krugman, then both of them could shop
on your VISA card.

Patrick


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