Paul Krugman is a jackass (1 Viewer)

[Desert_Power]

I don't think deficits don't matter at all, I was saying that the markets are worrying about the threat of deflation and the aneimic growth not by fears of the short run deficit and inflation. To put it differently, the market is concerned that aggregate demand is still very low, not that a marginal 100 billion dollars of stimulus to aggregate demand will suddenly plunge the country into a debt crisis. Therefore argueing that we are on the presipice of a debt crisis and therefore cannot afford to try to stimulate aggregate demand is wrong as Krugman has stated for over a year.

Over that year, LT bond yields have come down and now are at their lowest levels since March 2009 out of fears that growth is stagnating. If the market was concerned about potential future debt/GDP levels, then cutting deficit now now has a lot less impact than continued depressed below potential GDP output that results from fiscal contraction will. See the market's reaction to austerity in Greece and Ireland as evidence on what happens when you fight the wrong battle.

I honestly don't think anyone is arguing that another 100B will be the straw that breaks the camel's back. The problem is that no one believes that the government only needs another 100B in stimulus spending to fix everything and that after that it will suddenly become fiscally sane. What people like me are arguing is that we've already spent so much, and committed ourselves to so much future spending (e.g. SS, Medicare, defense, etc.) that politicians likely won't have the balls to undo, that we've already entered a long term debt crisis. While adding another 100B onto the pile won't massively tip the crisis, the problem is that adding another 100B does nothing to rectify the situation that's already been created. Basically, I'm not worried about bond prices today or tomorrow, and don't care one bit whether 100B raises or lowers bond prices by a couple percentage points over the next year. What I do care about is that continuing to spend when what we should be doing, for the country's long term health, is the exact opposite. Krugman is taking a statement along the lines of "we need to get a handle on our overspending, sooner rather than later, in order to avoid massive problems 10, 20, and 50 years down the road" and arguing it's the same as "the whole world will explode if we spend another dollar right this minute". No one is arguing the latter, and that's why I say he's built a strawman argument.

I think we have a disconnect between us on the drivers of long term debt. It is the ratio that matters, but what you are talking about makes it sound like the nominal level of spending is all that matters. In other words, Debt/GDP could be increasing because the level of debt is increasing or the level of output is stagnating(which typically would make the level of debt grow anyways due to the massive effects recession has on the deficit). However, short term fiscal contraction has a negative impact on output and further will depress aggregate demand. In a period where aggregate demand is what is keeping the economy below full output(almost 1 trillion beneath potential GDP), I can't support the notion that purposefully reducing it is a good idea. Slack of this level can have serious long run impacts to GDP(see: Japan) and lowering future GDP in this way is probably the last thing you want to do when if you are concerned about the long term debt outlook. There are few things you can do to hurt the country's long term health more than intentionally prolonging a period of depressed output.As for saing that we are already in a long term debt crisis, I think that is just hyperbole. I know you don't care about the market, but a 30 year treasury would not be yielding 3.6% if we were already in a debt crisis. No way.

 

[RCon]

I don't think deficits don't matter at all, I was saying that the markets are worrying about the threat of deflation and the aneimic growth not by fears of the short run deficit and inflation. To put it differently, the market is concerned that aggregate demand is still very low, not that a marginal 100 billion dollars of stimulus to aggregate demand will suddenly plunge the country into a debt crisis. Therefore argueing that we are on the presipice of a debt crisis and therefore cannot afford to try to stimulate aggregate demand is wrong as Krugman has stated for over a year.

Over that year, LT bond yields have come down and now are at their lowest levels since March 2009 out of fears that growth is stagnating. If the market was concerned about potential future debt/GDP levels, then cutting deficit now now has a lot less impact than continued depressed below potential GDP output that results from fiscal contraction will. See the market's reaction to austerity in Greece and Ireland as evidence on what happens when you fight the wrong battle.

I honestly don't think anyone is arguing that another 100B will be the straw that breaks the camel's back. The problem is that no one believes that the government only needs another 100B in stimulus spending to fix everything and that after that it will suddenly become fiscally sane. What people like me are arguing is that we've already spent so much, and committed ourselves to so much future spending (e.g. SS, Medicare, defense, etc.) that politicians likely won't have the balls to undo, that we've already entered a long term debt crisis. While adding another 100B onto the pile won't massively tip the crisis, the problem is that adding another 100B does nothing to rectify the situation that's already been created. Basically, I'm not worried about bond prices today or tomorrow, and don't care one bit whether 100B raises or lowers bond prices by a couple percentage points over the next year. What I do care about is that continuing to spend when what we should be doing, for the country's long term health, is the exact opposite. Krugman is taking a statement along the lines of "we need to get a handle on our overspending, sooner rather than later, in order to avoid massive problems 10, 20, and 50 years down the road" and arguing it's the same as "the whole world will explode if we spend another dollar right this minute". No one is arguing the latter, and that's why I say he's built a strawman argument.

I think we have a disconnect between us on the drivers of long term debt. It is the ratio that matters, but what you are talking about makes it sound like the nominal level of spending is all that matters. In other words, Debt/GDP could be increasing because the level of debt is increasing or the level of output is stagnating(which typically would make the level of debt grow anyways due to the massive effects recession has on the deficit). However, short term fiscal contraction has a negative impact on output and further will depress aggregate demand. In a period where aggregate demand is what is keeping the economy below full output(almost 1 trillion beneath potential GDP), I can't support the notion that purposefully reducing it is a good idea. Slack of this level can have serious long run impacts to GDP(see: Japan) and lowering future GDP in this way is probably the last thing you want to do when if you are concerned about the long term debt outlook. There are few things you can do to hurt the country's long term health more than intentionally prolonging a period of depressed output.As for saing that we are already in a long term debt crisis, I think that is just hyperbole. I know you don't care about the market, but a 30 year treasury would not be yielding 3.6% if we were already in a debt crisis. No way.

But for purposes of this thread, whether you and I agree on whether we'll already in a crisis and/or the best actions going forward isn't really the point. The point that I was making is that no one (or, more likely, an extremely small group) is arguing what Krugman says they're arguing.

 

[Desert_Power]

I don't think deficits don't matter at all, I was saying that the markets are worrying about the threat of deflation and the aneimic growth not by fears of the short run deficit and inflation. To put it differently, the market is concerned that aggregate demand is still very low, not that a marginal 100 billion dollars of stimulus to aggregate demand will suddenly plunge the country into a debt crisis. Therefore argueing that we are on the presipice of a debt crisis and therefore cannot afford to try to stimulate aggregate demand is wrong as Krugman has stated for over a year.

Over that year, LT bond yields have come down and now are at their lowest levels since March 2009 out of fears that growth is stagnating. If the market was concerned about potential future debt/GDP levels, then cutting deficit now now has a lot less impact than continued depressed below potential GDP output that results from fiscal contraction will. See the market's reaction to austerity in Greece and Ireland as evidence on what happens when you fight the wrong battle.

I honestly don't think anyone is arguing that another 100B will be the straw that breaks the camel's back. The problem is that no one believes that the government only needs another 100B in stimulus spending to fix everything and that after that it will suddenly become fiscally sane. What people like me are arguing is that we've already spent so much, and committed ourselves to so much future spending (e.g. SS, Medicare, defense, etc.) that politicians likely won't have the balls to undo, that we've already entered a long term debt crisis. While adding another 100B onto the pile won't massively tip the crisis, the problem is that adding another 100B does nothing to rectify the situation that's already been created. Basically, I'm not worried about bond prices today or tomorrow, and don't care one bit whether 100B raises or lowers bond prices by a couple percentage points over the next year. What I do care about is that continuing to spend when what we should be doing, for the country's long term health, is the exact opposite. Krugman is taking a statement along the lines of "we need to get a handle on our overspending, sooner rather than later, in order to avoid massive problems 10, 20, and 50 years down the road" and arguing it's the same as "the whole world will explode if we spend another dollar right this minute". No one is arguing the latter, and that's why I say he's built a strawman argument.

I think we have a disconnect between us on the drivers of long term debt. It is the ratio that matters, but what you are talking about makes it sound like the nominal level of spending is all that matters. In other words, Debt/GDP could be increasing because the level of debt is increasing or the level of output is stagnating(which typically would make the level of debt grow anyways due to the massive effects recession has on the deficit). However, short term fiscal contraction has a negative impact on output and further will depress aggregate demand. In a period where aggregate demand is what is keeping the economy below full output(almost 1 trillion beneath potential GDP), I can't support the notion that purposefully reducing it is a good idea. Slack of this level can have serious long run impacts to GDP(see: Japan) and lowering future GDP in this way is probably the last thing you want to do when if you are concerned about the long term debt outlook. There are few things you can do to hurt the country's long term health more than intentionally prolonging a period of depressed output.As for saing that we are already in a long term debt crisis, I think that is just hyperbole. I know you don't care about the market, but a 30 year treasury would not be yielding 3.6% if we were already in a debt crisis. No way.

But for purposes of this thread, whether you and I agree on whether we'll already in a crisis and/or the best actions going forward isn't really the point. The point that I was making is that no one (or, more likely, an extremely small group) is arguing what Krugman says they're arguing.

I think there are quite a few saying we need fiscal contraction now(namely almost all Rebuplican reps and most of the conservative blogosphere) but I'm not really as interested in arguing that as I am the actual issues.

 

[pantagrapher]

Bond MadnessThings are looking bleak for the economy; Goldman Sachs (no link) is predicting that 2nd quarter GDP growth will be revised down to 1.1%, and it’s downhill from here.Yet from late 2009 until just the other day, all the Very Serious People were mainly concerned about the possibility of surging interest rates. Why?I was looking back at some of my own notes about what happened last fall. At the time, there was serious consideration among the Obama people of pushing for some kind of second stimulus; what its chances might have been is hard to say. But the point is that they backed off. Why? My understanding is that they bought into the big scare of the time, which was that there was a “carry trade bubble” in the bond market, and terrible things would happen when it burst.No, this never made sense. Anyone who looked at recent Japanese history should have realized that with a depressed economy, low rates could and did last a very long time.And some of the scenarios being proposed were just plain bizarre: the bond bubble will burst, and this will plunge us into recession, and the Fed will have to buy up government debt, and this will mean inflation too. Really.And then the whole story shifted: suddenly it wasn’t the carry trade, it was sovereign debt risks, we’re all Greece.And now there’s a new one: you see, low interest rates will cause deflation. Really (near the end).And though the story shifts, the moral is always the same: the little people have to suffer.

 

[Iraqi Information Minister]

His latest Op-Ed...

Now That’s Rich

By PAUL KRUGMAN

Published: August 22, 2010

We need to pinch pennies these days. Don’t you know we have a budget deficit? For months that has been the word from Republicans and conservative Democrats, who have rejected every suggestion that we do more to avoid deep cuts in public services and help the ailing economy.

But these same politicians are eager to cut checks averaging $3 million each to the richest 120,000 people in the country.

What — you haven’t heard about this proposal? Actually, you have: I’m talking about demands that we make all of the Bush tax cuts, not just those for the middle class, permanent.

Some background: Back in 2001, when the first set of Bush tax cuts was rammed through Congress, the legislation was written with a peculiar provision — namely, that the whole thing would expire, with tax rates reverting to 2000 levels, on the last day of 2010.

Why the cutoff date? In part, it was used to disguise the fiscal irresponsibility of the tax cuts: lopping off that last year reduced the headline cost of the cuts, because such costs are normally calculated over a 10-year period. It also allowed the Bush administration to pass the tax cuts using reconciliation — yes, the same procedure that Republicans denounced when it was used to enact health reform — while sidestepping rules designed to prevent the use of that procedure to increase long-run budget deficits.

Obviously, the idea was to go back at a later date and make those tax cuts permanent. But things didn’t go according to plan. And now the witching hour is upon us.

So what’s the choice now? The Obama administration wants to preserve those parts of the original tax cuts that mainly benefit the middle class — which is an expensive proposition in its own right — but to let those provisions benefiting only people with very high incomes expire on schedule. Republicans, with support from some conservative Democrats, want to keep the whole thing.

And there’s a real chance that Republicans will get what they want. That’s a demonstration, if anyone needed one, that our political culture has become not just dysfunctional but deeply corrupt.

What’s at stake here? According to the nonpartisan Tax Policy Center, making all of the Bush tax cuts permanent, as opposed to following the Obama proposal, would cost the federal government $680 billion in revenue over the next 10 years. For the sake of comparison, it took months of hard negotiations to get Congressional approval for a mere $26 billion in desperately needed aid to state and local governments.

And where would this $680 billion go? Nearly all of it would go to the richest 1 percent of Americans, people with incomes of more than $500,000 a year. But that’s the least of it: the policy center’s estimates say that the majority of the tax cuts would go to the richest one-tenth of 1 percent. Take a group of 1,000 randomly selected Americans, and pick the one with the highest income; he’s going to get the majority of that group’s tax break. And the average tax break for those lucky few — the poorest members of the group have annual incomes of more than $2 million, and the average member makes more than $7 million a year — would be $3 million over the course of the next decade.

How can this kind of giveaway be justified at a time when politicians claim to care about budget deficits? Well, history is repeating itself. The original campaign for the Bush tax cuts relied on deception and dishonesty. In fact, my first suspicions that we were being misled into invading Iraq were based on the resemblance between the campaign for war and the campaign for tax cuts the previous year. And sure enough, that same trademark deception and dishonesty is being deployed on behalf of tax cuts for the wealthiest Americans.

So, for example, we’re told that it’s all about helping small business; but only a tiny fraction of small-business owners would receive any tax break at all. And how many small-business owners do you know making several million a year?

Or we’re told that it’s about helping the economy recover. But it’s hard to think of a less cost-effective way to help the economy than giving money to people who already have plenty, and aren’t likely to spend a windfall.

No, this has nothing to do with sound economic policy. Instead, as I said, it’s about a dysfunctional and corrupt political culture, in which Congress won’t take action to revive the economy, pleads poverty when it comes to protecting the jobs of schoolteachers and firefighters, but declares cost no object when it comes to sparing the already wealthy even the slightest financial inconvenience.

So far, the Obama administration is standing firm against this outrage. Let’s hope that it prevails in its fight. Otherwise, it will be hard not to lose all faith in America’s future.

He makes decent points when he talks about the slight effects these tax increases will have when applied to the uber rich but...When he frames it in terms of "cutting checks" and "giveaway" and "giving money" he sounds like the worst kind of class warrior. Government isn't GIVING anything, Paul - it's those people's money in the first place.

 

[IvanKaramazov]

He makes decent points when he talks about the slight effects these tax increases will have when applied to the uber rich but...

When he frames it in terms of "cutting checks" and "giveaway" and "giving money" he sounds like the worst kind of class warrior. Government isn't GIVING anything, Paul - it's those people's money in the first place.

 

[guderian]

I don't think deficits don't matter at all, I was saying that the markets are worrying about the threat of deflation and the aneimic growth not by fears of the short run deficit and inflation. To put it differently, the market is concerned that aggregate demand is still very low, not that a marginal 100 billion dollars of stimulus to aggregate demand will suddenly plunge the country into a debt crisis. Therefore argueing that we are on the presipice of a debt crisis and therefore cannot afford to try to stimulate aggregate demand is wrong as Krugman has stated for over a year. Over that year, LT bond yields have come down and now are at their lowest levels since March 2009 out of fears that growth is stagnating. If the market was concerned about potential future debt/GDP levels, then cutting deficit now now has a lot less impact than continued depressed below potential GDP output that results from fiscal contraction will. See the market's reaction to austerity in Greece and Ireland as evidence on what happens when you fight the wrong battle.

Bond rates are low because the Federal Reserve is buying up most of the treasuries...and they are going to get killed when rates move higher. You can't read market expectations into bond yields when you have a majority buyer who's driving their purchases out of policy and not economics.

The Fed holds a lot of treasury securities(almost 800 billion), however there is almost 13 billion dollars of debt out there, so they certainly don't own anywhere close to most,or even as much as China.

It's not the amount of treasuries that the own, it's the percentage that they've been buying. At one point it was north of 50%.

 

[pantagrapher]

The WSJ Changes Its LineThis morning, in its “Vital Signs” feature (not online, for some reason), the WSJ notes the plunge in interest rates, and says:"In April, when the economy looked healthier and it was believed the Federal Reserve would raise rates by year end, the 10-year yield approached 4%."But that’s not what the same newspaper said — in its news section, not its editorial page — back when rates actually were near 4%. Instead, it ran an article titled Debt Fears Send Rates Up; Unease At Deficit Hurts Demand For Treasurys.There’s a reason I keep harping on this. It’s not the fact that lots of people made a bad forecast; that’s going to happen now and then. it’s the fact that people were pushing a theory — a theory that said that we had to be terribly afraid of those bond vigilantes — which had no basis in actual evidence. Yet you wouldn’t have known that from reading the financial news media, which reported this theory, not as a hypothesis, but as fact.There was no evidence whatsoever, back in April, that debt fears were driving rates up. But the WSJ reported this completely made-up view as truth, without even a hint that it had weak (or, actually, zero) empirical support. In effect, news reporting became propaganda on behalf of a political agenda.I’m glad to see the WSJ now giving a more accurate account — but it’s a bit late, and the fear of invisible bond vigilantes has already done immense damage.

 

[pantagrapher]

We’re Still In A Paradox Of Thrift WorldThis morning Bloomberg has a story about how business investment — which was one of the few sources of strength lately — is flagging. Why? Because of concerns about overall economic growth.This should serve as a reminder that we’re still very much in a paradox of thrift world.In normal times, we believe that more saving, private or public, leads to more investment, because it frees up funds. But for that story to work, you have to have some channel through which higher savings increase the incentive to invest. And the way it works in practice, in good times, is that higher savings allow the Fed to cut interest rates, making capital cheaper, and hence on to investment.But right now we’re up against the zero lower bound — yes, I’ll get the usual complaints about how long-term rates aren’t zero, but the Fed doesn’t have direct control over those rates — so this normal channel doesn’t work.And what that means is that if people — or the government — try to save more, they only end up depressing the economy. And the weaker economy leads to lower, not higher investment. And this in turn means that attempts to save more don’t help our future prospects. On the contrary, they reduce the economy’s future growth.That’s why fiscal austerity is such a terrible idea: no only does it raise unemployment, it actually makes us poorer in the long run.

 

[H.K.]

He makes decent points when he talks about the slight effects these tax increases will have when applied to the uber rich but...

When he frames it in terms of "cutting checks" and "giveaway" and "giving money" he sounds like the worst kind of class warrior. Government isn't GIVING anything, Paul - it's those people's money in the first place.

 

[Andy Dufresne]

Starting to come unglued...

It’s Witch-Hunt SeasonBy PAUL KRUGMAN

The last time a Democrat sat in the White House, he faced a nonstop witch hunt by his political opponents. Prominent figures on the right accused Bill and Hillary Clinton of everything from drug smuggling to murder. And once Republicans took control of Congress, they subjected the Clinton administration to unrelenting harassment — at one point taking 140 hours of sworn testimony over accusations that the White House had misused its Christmas card list.

Now it’s happening again — except that this time it’s even worse. Let’s turn the floor over to Rush Limbaugh: “Imam Hussein Obama,” he recently declared, is “probably the best anti-American president we’ve ever had.”

To get a sense of how much it matters when people like Mr. Limbaugh talk like this, bear in mind that he’s an utterly mainstream figure within the Republican Party; bear in mind, too, that unless something changes the political dynamics, Republicans will soon control at least one house of Congress. This is going to be very, very ugly.

So where is this rage coming from? Why is it flourishing? What will it do to America?

Anyone who remembered the 1990s could have predicted something like the current political craziness. What we learned from the Clinton years is that a significant number of Americans just don’t consider government by liberals — even very moderate liberals — legitimate. Mr. Obama’s election would have enraged those people even if he were white. Of course, the fact that he isn’t, and has an alien-sounding name, adds to the rage.

By the way, I’m not talking about the rage of the excluded and the dispossessed: Tea Partiers are relatively affluent, and nobody is angrier these days than the very, very rich. Wall Street has turned on Mr. Obama with a vengeance: last month Steve Schwarzman, the billionaire chairman of the Blackstone Group, the private equity giant, compared proposals to end tax loopholes for hedge fund managers with the Nazi invasion of Poland.

And powerful forces are promoting and exploiting this rage. Jane Mayer’s new article in The New Yorker about the superrich Koch brothers and their war against Mr. Obama has generated much-justified attention, but as Ms. Mayer herself points out, only the scale of their effort is new: billionaires like Richard Mellon Scaife waged a similar war against Bill Clinton.

Meanwhile, the right-wing media are replaying their greatest hits. In the 1990s, Mr. Limbaugh used innuendo to feed anti-Clinton mythology, notably the insinuation that Hillary Clinton was complicit in the death of Vince Foster. Now, as we’ve just seen, he’s doing his best to insinuate that Mr. Obama is a Muslim. Again, though, there’s an extra level of craziness this time around: Mr. Limbaugh is the same as he always was, but now seems tame compared with Glenn Beck.

And where, in all of this, are the responsible Republicans, leaders who will stand up and say that some partisans are going too far? Nowhere to be found.

To take a prime example: the hysteria over the proposed Islamic center in lower Manhattan almost makes one long for the days when former President George W. Bush tried to soothe religious hatred, declaring Islam a religion of peace. There were good reasons for his position: there are a billion Muslims in the world, and America can’t afford to make all of them its enemies.

But here’s the thing: Mr. Bush is still around, as are many of his former officials. Where are the statements, from the former president or those in his inner circle, preaching tolerance and denouncing anti-Islam hysteria? On this issue, as on many others, the G.O.P. establishment is offering a nearly uniform profile in cowardice.

So what will happen if, as expected, Republicans win control of the House? We already know part of the answer: Politico reports that they’re gearing up for a repeat performance of the 1990s, with a “wave of committee investigations” — several of them over supposed scandals that we already know are completely phony. We can expect the G.O.P. to play chicken over the federal budget, too; I’d put even odds on a 1995-type government shutdown sometime over the next couple of years.

It will be an ugly scene, and it will be dangerous, too. The 1990s were a time of peace and prosperity; this is a time of neither. In particular, we’re still suffering the after-effects of the worst economic crisis since the 1930s, and we can’t afford to have a federal government paralyzed by an opposition with no interest in helping the president govern. But that’s what we’re likely to get.

If I were President Obama, I’d be doing all I could to head off this prospect, offering some major new initiatives on the economic front in particular, if only to shake up the political dynamic. But my guess is that the president will continue to play it safe, all the way into catastrophe.

Playing the race card and calling out GWB - from whom we've heard nary a peep from since leaving office.Hey Paul...

 

[Statorama]

Starting to come unglued...

Wow.

 

[IvanKaramazov]

I seem to recall a presidency sandwiched in between Clinton and Obama, and I seem to recall lots of partisan craziness during that administration too. I wonder if there's some reason Krugman left that one out, or if it was just an honest oversight on his part.

 

[jonessed]

I seem to recall a presidency sandwiched in between Clinton and Obama, and I seem to recall lots of partisan craziness during that administration too. I wonder if there's some reason Krugman left that one out, or if it was just an honest oversight on his part.

Apparently Soros doesn't rise to the rank of billionaire presidential war wager either.Another victim of the political echo chamber.

 

[Bottomfeeder Sports]

I seem to recall a presidency sandwiched in between Clinton and Obama, and I seem to recall lots of partisan craziness during that administration too. I wonder if there's some reason Krugman left that one out, or if it was just an honest oversight on his part.

Are you really comparing nude bike rides with tea parties?

 

[guderian]

Starting to come unglued...

It’s Witch-Hunt SeasonBy PAUL KRUGMAN

The last time a Democrat sat in the White House, he faced a nonstop witch hunt by his political opponents. Prominent figures on the right accused Bill and Hillary Clinton of everything from drug smuggling to murder. And once Republicans took control of Congress, they subjected the Clinton administration to unrelenting harassment — at one point taking 140 hours of sworn testimony over accusations that the White House had misused its Christmas card list.

...

To get a sense of how much it matters when people like Mr. Limbaugh talk like this, bear in mind that he’s an utterly mainstream figure within the Republican Party; bear in mind, too, that unless something changes the political dynamics, Republicans will soon control at least one house of Congress. This is going to be very, very ugly.

Ahhhh...sweet gridlock. By the way, I do appreciate that the left keeps me up on what Limbaugh and Beck are saying--I'd never know if it wasn't for them.

 

[cubd8]

Latest Krugman jackassery: Social Security is fine

Social Security isn't 100% fine, but it is not the real concern for this nation's long term fiscal problems.

Correct. Minor adjustments are all that are needed on Social Security, beyond what is aready on the books. The current law is actually 100% self regulating, i.e., once the SSTF has been emptied benefits would be paid would all be cut to match the amount being taken in. The long term outlook can made healthier, however, with some minor tweaks to the benefits schedule and payroll taxes. Medicare (really healthcare in general) is the problem, not Social Security.

Bernie Sanders (socialist from the Senate in Vermont) wrote this today:First, let’s be clear: Despite all the right-wing rhetoric, Social Security is not going bankrupt. That’s a lie!

The truth is that the Social Security Trust Fund has run surpluses for the last quarter century. Today’s $2.5 trillion cushion is projected to grow to $4 trillion in 2023. The nonpartisan Congressional Budget Office, experts in this area, say Social Security will be able to pay every nickel owed to every eligible beneficiary until 2039.

1) Is this true?

He also says this:

Under the law today, the Social Security payroll tax is levied only on earnings up to $106,800 a year. That means millionaires and billionaires get off scot free on all of their income above that amount. Applying the Social Security payroll tax on those with the most income, say over $250,000 a year, would correct this inequity. According to CBO, applying the tax to all income would provide all the revenue that Social Security needs for the foreseeable future

2) Why should I pay a higher percentage of my income to social security than someone who makes 500,000 dollars?

3) Should the ceiling should either be raised or taken away completely? If taking away the ceiling means that a small business owner now cannot hire more employees, is that still a good idea OR is going from 1% to 2% will cause a small business owner to not hire an employee? That doesn't seem like much to me. How about a CEO making 10 mil a year? Why should his number be capped? Or, a pro athlete making 20 million a year??

 

[djmich]

Latest Krugman jackassery: Social Security is fine

Social Security isn't 100% fine, but it is not the real concern for this nation's long term fiscal problems.

Correct. Minor adjustments are all that are needed on Social Security, beyond what is aready on the books. The current law is actually 100% self regulating, i.e., once the SSTF has been emptied benefits would be paid would all be cut to match the amount being taken in. The long term outlook can made healthier, however, with some minor tweaks to the benefits schedule and payroll taxes. Medicare (really healthcare in general) is the problem, not Social Security.

Bernie Sanders (socialist from the Senate in Vermont) wrote this today:First, let’s be clear: Despite all the right-wing rhetoric, Social Security is not going bankrupt. That’s a lie!

The truth is that the Social Security Trust Fund has run surpluses for the last quarter century. Today’s $2.5 trillion cushion is projected to grow to $4 trillion in 2023. The nonpartisan Congressional Budget Office, experts in this area, say Social Security will be able to pay every nickel owed to every eligible beneficiary until 2039.

1) Is this true?

He also says this:

Under the law today, the Social Security payroll tax is levied only on earnings up to $106,800 a year. That means millionaires and billionaires get off scot free on all of their income above that amount. Applying the Social Security payroll tax on those with the most income, say over $250,000 a year, would correct this inequity. According to CBO, applying the tax to all income would provide all the revenue that Social Security needs for the foreseeable future

2) Why should I pay a higher percentage of my income to social security than someone who makes 500,000 dollars?

3) Should the ceiling should either be raised or taken away completely? If taking away the ceiling means that a small business owner now cannot hire more employees, is that still a good idea OR is going from 1% to 2% will cause a small business owner to not hire an employee? That doesn't seem like much to me. How about a CEO making 10 mil a year? Why should his number be capped? Or, a pro athlete making 20 million a year??

Are their benefits under Social Security capped?

 

[tommyGunZ]

When he frames it in terms of "cutting checks" and "giveaway" and "giving money" he sounds like the worst kind of class warrior. Government isn't GIVING anything, Paul - it's those people's money in the first place.

Is it really those people's money in the first place though Andy? It's not as if people are unaware of federal income tax. Every dollar earned in the US carries a tax burden - by participating in the economic system in place you are agreeing to pay taxes on every dollar earned as stipulated by the gov't. So you can keep that $.20 on the dollar you earned until April 15th, and then whine about the "evil gov't" taking "your" money, but the reality is that the $.20 was earmarked for the gov't the second you earned it. The system we've created with property laws and business regulations has enabled economic commerce to flourish. That system (and the policing of it) isn't free.

 

[jonessed]

Latest Krugman jackassery: Social Security is fine

Social Security isn't 100% fine, but it is not the real concern for this nation's long term fiscal problems.

Correct. Minor adjustments are all that are needed on Social Security, beyond what is aready on the books. The current law is actually 100% self regulating, i.e., once the SSTF has been emptied benefits would be paid would all be cut to match the amount being taken in. The long term outlook can made healthier, however, with some minor tweaks to the benefits schedule and payroll taxes. Medicare (really healthcare in general) is the problem, not Social Security.

Bernie Sanders (socialist from the Senate in Vermont) wrote this today:First, let’s be clear: Despite all the right-wing rhetoric, Social Security is not going bankrupt. That’s a lie!

The truth is that the Social Security Trust Fund has run surpluses for the last quarter century. Today’s $2.5 trillion cushion is projected to grow to $4 trillion in 2023. The nonpartisan Congressional Budget Office, experts in this area, say Social Security will be able to pay every nickel owed to every eligible beneficiary until 2039.

1) Is this true?

He also says this:

Under the law today, the Social Security payroll tax is levied only on earnings up to $106,800 a year. That means millionaires and billionaires get off scot free on all of their income above that amount. Applying the Social Security payroll tax on those with the most income, say over $250,000 a year, would correct this inequity. According to CBO, applying the tax to all income would provide all the revenue that Social Security needs for the foreseeable future

2) Why should I pay a higher percentage of my income to social security than someone who makes 500,000 dollars?

3) Should the ceiling should either be raised or taken away completely? If taking away the ceiling means that a small business owner now cannot hire more employees, is that still a good idea OR is going from 1% to 2% will cause a small business owner to not hire an employee? That doesn't seem like much to me. How about a CEO making 10 mil a year? Why should his number be capped? Or, a pro athlete making 20 million a year??

Are their benefits under Social Security capped?

Yes. There are no benefits past $106,800, which is why it is capped there.

 

[Andy Dufresne]

When he frames it in terms of "cutting checks" and "giveaway" and "giving money" he sounds like the worst kind of class warrior. Government isn't GIVING anything, Paul - it's those people's money in the first place.

Is it really those people's money in the first place though Andy? It's not as if people are unaware of federal income tax. Every dollar earned in the US carries a tax burden - by participating in the economic system in place you are agreeing to pay taxes on every dollar earned as stipulated by the gov't. So you can keep that $.20 on the dollar you earned until April 15th, and then whine about the "evil gov't" taking "your" money, but the reality is that the $.20 was earmarked for the gov't the second you earned it. The system we've created with property laws and business regulations has enabled economic commerce to flourish. That system (and the policing of it) isn't free.

That's no argument at all that that wealth (it helps to distinguish wealth from money, I think) doesn't belong to the individual rather than the government.

 

[Arsenal of Doom]

Latest Krugman jackassery: Social Security is fine

Social Security isn't 100% fine, but it is not the real concern for this nation's long term fiscal problems.

Correct. Minor adjustments are all that are needed on Social Security, beyond what is aready on the books. The current law is actually 100% self regulating, i.e., once the SSTF has been emptied benefits would be paid would all be cut to match the amount being taken in. The long term outlook can made healthier, however, with some minor tweaks to the benefits schedule and payroll taxes. Medicare (really healthcare in general) is the problem, not Social Security.

Bernie Sanders (socialist from the Senate in Vermont) wrote this today:First, let’s be clear: Despite all the right-wing rhetoric, Social Security is not going bankrupt. That’s a lie!

The truth is that the Social Security Trust Fund has run surpluses for the last quarter century. Today’s $2.5 trillion cushion is projected to grow to $4 trillion in 2023. The nonpartisan Congressional Budget Office, experts in this area, say Social Security will be able to pay every nickel owed to every eligible beneficiary until 2039.

1) Is this true?

He also says this:

Under the law today, the Social Security payroll tax is levied only on earnings up to $106,800 a year. That means millionaires and billionaires get off scot free on all of their income above that amount. Applying the Social Security payroll tax on those with the most income, say over $250,000 a year, would correct this inequity. According to CBO, applying the tax to all income would provide all the revenue that Social Security needs for the foreseeable future

2) Why should I pay a higher percentage of my income to social security than someone who makes 500,000 dollars?

3) Should the ceiling should either be raised or taken away completely? If taking away the ceiling means that a small business owner now cannot hire more employees, is that still a good idea OR is going from 1% to 2% will cause a small business owner to not hire an employee? That doesn't seem like much to me. How about a CEO making 10 mil a year? Why should his number be capped? Or, a pro athlete making 20 million a year??

1. 2039 sounds about right but that's a fluid number. The SSTF could go quicker or last longer depending on what happens in the economy between now and then. Of course the effects of the Social Security surplus going away will be felt much more quickly, as it has partially masked the size of budget deficits for the last 30 years. Because the surplus goes into the general treasury fund, it has gone into spending that would otherwise have been funded with publicly held debt - and will be unless the general budget deficit is closed through some combination of taxes and spending cuts. The SSTF itself is actually publicly held debt. When those special issue treasury bonds are converted into payment to beneficiaries, that debt will be converted into public debt (or repurchased by the Fed) barring an unexpected general budget surplus to cover it. The combination of the surplus going away, plus new debt required for SSTF transfer (albeit already recognized debt) makes it a more complicated matter than the original statement implies.

2 and 3 are related questions. Historically Social Security has operated under the premise of being a contributory insurance program. In other words everyone (with a few exceptions) pays in, and everyone has the opportunity to eventually be paid out based in proportion to what they contributed. Making changes like the ones you mentioned would change into more of a direct social welfare and transfer of income program.

FWIW, I don't think anything as dramatic as removing the cap on payroll taxes is required to make it sustainable (although raising it will probably happen).

 

[DrJ]

Latest Krugman jackassery: Social Security is fine

Social Security isn't 100% fine, but it is not the real concern for this nation's long term fiscal problems.

Correct. Minor adjustments are all that are needed on Social Security, beyond what is aready on the books. The current law is actually 100% self regulating, i.e., once the SSTF has been emptied benefits would be paid would all be cut to match the amount being taken in. The long term outlook can made healthier, however, with some minor tweaks to the benefits schedule and payroll taxes. Medicare (really healthcare in general) is the problem, not Social Security.

Bernie Sanders (socialist from the Senate in Vermont) wrote this today:First, let’s be clear: Despite all the right-wing rhetoric, Social Security is not going bankrupt. That’s a lie!

The truth is that the Social Security Trust Fund has run surpluses for the last quarter century. Today’s $2.5 trillion cushion is projected to grow to $4 trillion in 2023. The nonpartisan Congressional Budget Office, experts in this area, say Social Security will be able to pay every nickel owed to every eligible beneficiary until 2039.

1) Is this true?

He also says this:

Under the law today, the Social Security payroll tax is levied only on earnings up to $106,800 a year. That means millionaires and billionaires get off scot free on all of their income above that amount. Applying the Social Security payroll tax on those with the most income, say over $250,000 a year, would correct this inequity. According to CBO, applying the tax to all income would provide all the revenue that Social Security needs for the foreseeable future

2) Why should I pay a higher percentage of my income to social security than someone who makes 500,000 dollars?

3) Should the ceiling should either be raised or taken away completely? If taking away the ceiling means that a small business owner now cannot hire more employees, is that still a good idea OR is going from 1% to 2% will cause a small business owner to not hire an employee? That doesn't seem like much to me. How about a CEO making 10 mil a year? Why should his number be capped? Or, a pro athlete making 20 million a year??

1. 2039 sounds about right but that's a fluid number. The SSTF could go quicker or last longer depending on what happens in the economy between now and then. Of course the effects of the Social Security surplus going away will be felt much more quickly, as it has partially masked the size of budget deficits for the last 30 years. Because the surplus goes into the general treasury fund, it has gone into spending that would otherwise have been funded with publicly held debt - and will be unless the general budget deficit is closed through some combination of taxes and spending cuts. The SSTF itself is actually publicly held debt. When those special issue treasury bonds are converted into payment to beneficiaries, that debt will be converted into public debt (or repurchased by the Fed) barring an unexpected general budget surplus to cover it. The combination of the surplus going away, plus new debt required for SSTF transfer (albeit already recognized debt) makes it a more complicated matter than the original statement implies.

2 and 3 are related questions. Historically Social Security has operated under the premise of being a contributory insurance program. In other words everyone (with a few exceptions) pays in, and everyone has the opportunity to eventually be paid out based in proportion to what they contributed. Making changes like the ones you mentioned would change into more of a direct social welfare and transfer of income program.

FWIW, I don't think anything as dramatic as removing the cap on payroll taxes is required to make it sustainable (although raising it will probably happen).

The other point about #1 is that this 2.5 trillion cushion has been applied to the general budget to make that look better. Now we're going to have to find new sources of revenue to cover your current spending that SS surpluses have been covering for. So rather than a surplus to help hide other spending, you go to something that is a 86 billion dollar a year drain on the general budget (average over the next 29 years), who has to now pay this back.

Problem isn't that it's going bankrupt in the immediate future. It's that this 2.5 trillion isn't just sitting on the sidelines waiting to pay beneficiaries and now it's time to pay the piper for the money you borrowed.

Outside of the system just generally sucking and being a poor investment for those involved.

 

[Arsenal of Doom]

1. 2039 sounds about right but that's a fluid number. The SSTF could go quicker or last longer depending on what happens in the economy between now and then. Of course the effects of the Social Security surplus going away will be felt much more quickly, as it has partially masked the size of budget deficits for the last 30 years. Because the surplus goes into the general treasury fund, it has gone into spending that would otherwise have been funded with publicly held debt - and will be unless the general budget deficit is closed through some combination of taxes and spending cuts.

The SSTF itself is actually publicly held debt. When those special issue treasury bonds are converted into payment to beneficiaries, that debt will be converted into public debt (or repurchased by the Fed) barring an unexpected general budget surplus to cover it. The combination of the surplus going away, plus new debt required for SSTF transfer (albeit already recognized debt) makes it a more complicated matter than the original statement implies.

2 and 3 are related questions. Historically Social Security has operated under the premise of being a contributory insurance program. In other words everyone (with a few exceptions) pays in, and everyone has the opportunity to eventually be paid out based in proportion to what they contributed. Making changes like the ones you mentioned would change into more of a direct social welfare and transfer of income program.

FWIW, I don't think anything as dramatic as removing the cap on payroll taxes is required to make it sustainable (although raising it will probably happen).

The other point about #1 is that this 2.5 trillion cushion has been applied to the general budget to make that look better. Now we're going to have to find new sources of revenue to cover your current spending that SS surpluses have been covering for. So rather than a surplus to help hide other spending, you go to something that is a 86 billion dollar a year drain on the general budget (average over the next 29 years), who has to now pay this back.

Isn't that what I just said?

Problem isn't that it's going bankrupt in the immediate future. It's that this 2.5 trillion isn't just sitting on the sidelines waiting to pay beneficiaries and now it's time to pay the piper for the money you borrowed.

Outside of the system just generally sucking and being a poor investment for those involved.

The SSTF is already recognized as part of the National Debt, so it's not so much paying the piper as it is transferring debt from one source to another. The simplified way to think of it would be using one credit card to pay off another (it's obviously more complex because unlike consumer debt, it's fallacy to assume that the National Debt is ever really expected to be paid out). We disagree widely on Social Security in general. The problem comes in if you think of it as an investment in the conventional sense. In those terms any insurance is a bad investment because the entire premise is that the majority of people will pay out far more than they ever get back from the system. Like all insurance, Social Security is a risk leveler - not just for the elderly, but for the lower and middle class earners who don't have to bear the full financial burden of an elderly parent or disabled child. This should encourage both increased spending and investment savings - in fact, contrary to common belief, the personal savings rate increased for the better part of 50 years after Social Security became law. It was only when interest rates began to drop significantly in the 80s, encouraging spending over savings, that the savings rates began to decline.

 

[DevilsTrifecta]

When he frames it in terms of "cutting checks" and "giveaway" and "giving money" he sounds like the worst kind of class warrior. Government isn't GIVING anything, Paul - it's those people's money in the first place.

Is it really those people's money in the first place though Andy? It's not as if people are unaware of federal income tax. Every dollar earned in the US carries a tax burden - by participating in the economic system in place you are agreeing to pay taxes on every dollar earned as stipulated by the gov't. So you can keep that $.20 on the dollar you earned until April 15th, and then whine about the "evil gov't" taking "your" money, but the reality is that the $.20 was earmarked for the gov't the second you earned it. The system we've created with property laws and business regulations has enabled economic commerce to flourish. That system (and the policing of it) isn't free.

That's a pretty moronic argument to justify taxation by saying a person should count on it. The bottom line is that money was taken forcibly from me and given to another without my consent.

 

[DrJ]

Sorry, misread what you were saying.

We disagree widely on Social Security in general. The problem comes in if you think of it as an investment in the conventional sense. In those terms any insurance is a bad investment because the entire premise is that the majority of people will pay out far more than they ever get back from the system. Like all insurance, Social Security is a risk leveler - not just for the elderly, but for the lower and middle class earners who don't have to bear the full financial burden of an elderly parent or disabled child. This should encourage both increased spending and investment savings - in fact, contrary to common belief, the personal savings rate increased for the better part of 50 years after Social Security became law. It was only when interest rates began to drop significantly in the 80s, encouraging spending over savings, that the savings rates began to decline.

They should change the name to disability insurance then. As a retirement fund, it underperforms for people of all income levels. The only people getting actual benefit out of it are people that take advantage of disability.

 

[Bottomfeeder Sports]

Sorry, misread what you were saying.

We disagree widely on Social Security in general. The problem comes in if you think of it as an investment in the conventional sense. In those terms any insurance is a bad investment because the entire premise is that the majority of people will pay out far more than they ever get back from the system. Like all insurance, Social Security is a risk leveler - not just for the elderly, but for the lower and middle class earners who don't have to bear the full financial burden of an elderly parent or disabled child. This should encourage both increased spending and investment savings - in fact, contrary to common belief, the personal savings rate increased for the better part of 50 years after Social Security became law. It was only when interest rates began to drop significantly in the 80s, encouraging spending over savings, that the savings rates began to decline.

They should change the name to disability insurance then. As a retirement fund, it underperforms for people of all income levels. The only people getting actual benefit out of it are people that take advantage of disability.

You benefit from lower taxes elsewhere whether those taxes are lower income tax rates or because the government is competing less at bond sales. Either way tax payers and participants in the economy win versus the "all other things being equal" version of no surpluses.Now I realize you don't want "all other things being equal" but you cannot analyze the benefits of how one aspect of a system is currently set up by complaining about other pieces of the puzzle. Also the "rate of return", i.e. the interest paid on these bonds is not really the issue that it is made out to be. SS is getting a low rate of return (well in normal times at least when regular government bonds aren't selling for near 0%), but that is offset by the low interest rates in the general budget. This is all just accounting entries. Investing the surplus in relatively safe investments would simply mean that the difference would be made up by selling relatively safe investment treasury department bonds which would be bought at higher interest rates.

Those in the job market have also historically benefited by the upward mobility of allowing seniors to leave the job market. Now with an aging population and a large number of American residents working off the books this benefit might be less apparent in the recent pass, but the ability to move up benefited everyone.

 

[IvanKaramazov]

When he frames it in terms of "cutting checks" and "giveaway" and "giving money" he sounds like the worst kind of class warrior. Government isn't GIVING anything, Paul - it's those people's money in the first place.

Is it really those people's money in the first place though Andy? It's not as if people are unaware of federal income tax. Every dollar earned in the US carries a tax burden - by participating in the economic system in place you are agreeing to pay taxes on every dollar earned as stipulated by the gov't. So you can keep that $.20 on the dollar you earned until April 15th, and then whine about the "evil gov't" taking "your" money, but the reality is that the $.20 was earmarked for the gov't the second you earned it. The system we've created with property laws and business regulations has enabled economic commerce to flourish. That system (and the policing of it) isn't free.

Yes, it is. The fact that it's taken away by the government either immediately through witholding or at a later date doesn't change anything as far as I can see. I have to pay my mortgage every month, so I know that ~$1000 or so of each paycheck is immediately going to get sent to my bank, but that doesn't change the fact that it really is my income, which I earned, and which rightly belongs to me. I completely agree that taxation is justified. No argument there. Still, it's not a "giveaway" to let people keep more of their own money. Confiscating less isn't a giveaway. By and large, I think we would be governed better if, when discussing taxes, our leaders consistently framed the question as "How much money do we need to confiscate?" instead of "How much money should we let people keep?"

 

[Bottomfeeder Sports]

... By and large, I think we would be governed better if, when discussing taxes, our leaders consistently framed the question as "How much money do we need to confiscate?" instead of "How much money should we let people keep?"

I think we'd be better governed if those ultimately suppose to be in charge - "We the People" had to pay the full sticker price for the government we ultimately demand.

 

[IvanKaramazov]

... By and large, I think we would be governed better if, when discussing taxes, our leaders consistently framed the question as "How much money do we need to confiscate?" instead of "How much money should we let people keep?"

I think we'd be better governed if those ultimately suppose to be in charge - "We the People" had to pay the full sticker price for the government we ultimately demand.

Me too.

 

[pantagrapher]

The Real StoryBy PAUL KRUGMANPublished: September 2, 2010 Next week, President Obama is scheduled to propose new measures to boost the economy. I hope they’re bold and substantive, since the Republicans will oppose him regardless — if he came out for motherhood, the G.O.P. would declare motherhood un-American. So he should put them on the spot for standing in the way of real action.But let’s put politics aside and talk about what we’ve actually learned about economic policy over the past 20 months.When Mr. Obama first proposed $800 billion in fiscal stimulus, there were two groups of critics. Both argued that unemployment would stay high — but for very different reasons.One group — the group that got almost all the attention — declared that the stimulus was much too large, and would lead to disaster. If you were, say, reading The Wall Street Journal’s opinion pages in early 2009, you would have been repeatedly informed that the Obama plan would lead to skyrocketing interest rates and soaring inflation.The other group, which included yours truly, warned that the plan was much too small given the economic forecasts then available. As I pointed out in February 2009, the Congressional Budget Office was predicting a $2.9 trillion hole in the economy over the next two years; an $800 billion program, partly consisting of tax cuts that would have happened anyway, just wasn’t up to the task of filling that hole.Critics in the second camp were particularly worried about what would happen this year, since the stimulus would have its maximum effect on growth in late 2009 then gradually fade out. Last year, many of us were already warning that the economy might stall in the second half of 2010.So what actually happened? The administration’s optimistic forecast was wrong, but which group of pessimists was right about the reasons for that error?Start with interest rates. Those who said the stimulus was too big predicted sharply rising rates. When rates rose in early 2009, The Wall Street Journal published an editorial titled “The Bond Vigilantes: The disciplinarians of U.S. policy makers return.” The editorial declared that it was all about fear of deficits, and concluded, “When in doubt, bet on the markets.”But those who said the stimulus was too small argued that temporary deficits weren’t a problem as long as the economy remained depressed; we were awash in savings with nowhere to go. Interest rates, we said, would fluctuate with optimism or pessimism about future growth, not with government borrowing.When in doubt, bet on the markets. The 10-year bond rate was over 3.7 percent when The Journal published that editorial; it’s under 2.7 percent now.What about inflation? Amid the inflation hysteria of early 2009, the inadequate-stimulus critics pointed out that inflation always falls during sustained periods of high unemployment, and that this time should be no different. Sure enough, key measures of inflation have fallen from more than 2 percent before the economic crisis to 1 percent or less now, and Japanese-style deflation is looking like a real possibility.Meanwhile, the timing of recent economic growth strongly supports the notion that stimulus does, indeed, boost the economy: growth accelerated last year, as the stimulus reached its predicted peak impact, but has fallen off — just as some of us feared — as the stimulus has faded.Oh, and don’t tell me that Germany proves that austerity, not stimulus, is the way to go. Germany actually did quite a lot of stimulus — the austerity is all in the future. Also, it never had a housing bubble that burst. And with all that, German G.D.P. is still further below its precrisis peak than American G.D.P. True, Germany has done better in terms of employment — but that’s because strong unions and government policy have prevented American-style mass layoffs.The actual lessons of 2009-2010, then, are that scare stories about stimulus are wrong, and that stimulus works when it is applied. But it wasn’t applied on a sufficient scale. And we need another round.I know that getting that round is unlikely: Republicans and conservative Democrats won’t stand for it. And if, as expected, the G.O.P. wins big in November, this will be widely regarded as a vindication of the anti-stimulus position. Mr. Obama, we’ll be told, moved too far to the left, and his Keynesian economic doctrine was proved wrong.But politics determines who has the power, not who has the truth. The economic theory behind the Obama stimulus has passed the test of recent events with flying colors; unfortunately, Mr. Obama, for whatever reason — yes, I’m aware that there were political constraints — initially offered a plan that was much too cautious given the scale of the economy’s problems.So, as I said, here’s hoping that Mr. Obama goes big next week. If he does, he’ll have the facts on his side.

 

[Andy Dufresne]

Enough, Paul. You keep wishing we'd turn the amp to 11 when it doesn't go that high. Even if you're right that the stimulus needed to be about three times larger, It wasn't politically possible to get there.

How about a real world solution once in a while?

 

[Desert_Power]

The Real StoryBy PAUL KRUGMANPublished: September 2, 2010 Next week, President Obama is scheduled to propose new measures to boost the economy. I hope they’re bold and substantive, since the Republicans will oppose him regardless — if he came out for motherhood, the G.O.P. would declare motherhood un-American. So he should put them on the spot for standing in the way of real action.But let’s put politics aside and talk about what we’ve actually learned about economic policy over the past 20 months.When Mr. Obama first proposed $800 billion in fiscal stimulus, there were two groups of critics. Both argued that unemployment would stay high — but for very different reasons.One group — the group that got almost all the attention — declared that the stimulus was much too large, and would lead to disaster. If you were, say, reading The Wall Street Journal’s opinion pages in early 2009, you would have been repeatedly informed that the Obama plan would lead to skyrocketing interest rates and soaring inflation.The other group, which included yours truly, warned that the plan was much too small given the economic forecasts then available. As I pointed out in February 2009, the Congressional Budget Office was predicting a $2.9 trillion hole in the economy over the next two years; an $800 billion program, partly consisting of tax cuts that would have happened anyway, just wasn’t up to the task of filling that hole.Critics in the second camp were particularly worried about what would happen this year, since the stimulus would have its maximum effect on growth in late 2009 then gradually fade out. Last year, many of us were already warning that the economy might stall in the second half of 2010.So what actually happened? The administration’s optimistic forecast was wrong, but which group of pessimists was right about the reasons for that error?Start with interest rates. Those who said the stimulus was too big predicted sharply rising rates. When rates rose in early 2009, The Wall Street Journal published an editorial titled “The Bond Vigilantes: The disciplinarians of U.S. policy makers return.” The editorial declared that it was all about fear of deficits, and concluded, “When in doubt, bet on the markets.”But those who said the stimulus was too small argued that temporary deficits weren’t a problem as long as the economy remained depressed; we were awash in savings with nowhere to go. Interest rates, we said, would fluctuate with optimism or pessimism about future growth, not with government borrowing.When in doubt, bet on the markets. The 10-year bond rate was over 3.7 percent when The Journal published that editorial; it’s under 2.7 percent now.What about inflation? Amid the inflation hysteria of early 2009, the inadequate-stimulus critics pointed out that inflation always falls during sustained periods of high unemployment, and that this time should be no different. Sure enough, key measures of inflation have fallen from more than 2 percent before the economic crisis to 1 percent or less now, and Japanese-style deflation is looking like a real possibility.Meanwhile, the timing of recent economic growth strongly supports the notion that stimulus does, indeed, boost the economy: growth accelerated last year, as the stimulus reached its predicted peak impact, but has fallen off — just as some of us feared — as the stimulus has faded.Oh, and don’t tell me that Germany proves that austerity, not stimulus, is the way to go. Germany actually did quite a lot of stimulus — the austerity is all in the future. Also, it never had a housing bubble that burst. And with all that, German G.D.P. is still further below its precrisis peak than American G.D.P. True, Germany has done better in terms of employment — but that’s because strong unions and government policy have prevented American-style mass layoffs.The actual lessons of 2009-2010, then, are that scare stories about stimulus are wrong, and that stimulus works when it is applied. But it wasn’t applied on a sufficient scale. And we need another round.I know that getting that round is unlikely: Republicans and conservative Democrats won’t stand for it. And if, as expected, the G.O.P. wins big in November, this will be widely regarded as a vindication of the anti-stimulus position. Mr. Obama, we’ll be told, moved too far to the left, and his Keynesian economic doctrine was proved wrong.But politics determines who has the power, not who has the truth. The economic theory behind the Obama stimulus has passed the test of recent events with flying colors; unfortunately, Mr. Obama, for whatever reason — yes, I’m aware that there were political constraints — initially offered a plan that was much too cautious given the scale of the economy’s problems.So, as I said, here’s hoping that Mr. Obama goes big next week. If he does, he’ll have the facts on his side.

Following the inflation vs. deflation debate over the last year, Krugman has been right every step of the way. I wish we would have listened to him on the stimulus, though I think he was off on what to do with the banks and is off when he talks about how the Fed should bring down long term rates.

 

[Desert_Power]

Enough, Paul. You keep wishing we'd turn the amp to 11 when it doesn't go that high. Even if you're right that the stimulus needed to be about three times larger, It wasn't politically possible to get there.How about a real world solution once in a while?

I'm hoping a payroll tax holiday can get some political momentum. Given that most of the employment gap is with unskilled workers, lowering those taxes should help out with both the demand and supply sides. Of course, in my perfect world, the payroll tax probably wouldn't exsist in any form which would help towards replacing SS with something more efficient.

 

[Spiderman]

Latest Krugman jackassery: Social Security is fine

Social Security isn't 100% fine, but it is not the real concern for this nation's long term fiscal problems.

Correct. Minor adjustments are all that are needed on Social Security, beyond what is aready on the books. The current law is actually 100% self regulating, i.e., once the SSTF has been emptied benefits would be paid would all be cut to match the amount being taken in. The long term outlook can made healthier, however, with some minor tweaks to the benefits schedule and payroll taxes. Medicare (really healthcare in general) is the problem, not Social Security.

Bernie Sanders (socialist from the Senate in Vermont) wrote this today:First, let’s be clear: Despite all the right-wing rhetoric, Social Security is not going bankrupt. That’s a lie!

The truth is that the Social Security Trust Fund has run surpluses for the last quarter century. Today’s $2.5 trillion cushion is projected to grow to $4 trillion in 2023. The nonpartisan Congressional Budget Office, experts in this area, say Social Security will be able to pay every nickel owed to every eligible beneficiary until 2039.

1) Is this true?

He also says this:

Under the law today, the Social Security payroll tax is levied only on earnings up to $106,800 a year. That means millionaires and billionaires get off scot free on all of their income above that amount. Applying the Social Security payroll tax on those with the most income, say over $250,000 a year, would correct this inequity. According to CBO, applying the tax to all income would provide all the revenue that Social Security needs for the foreseeable future

2) Why should I pay a higher percentage of my income to social security than someone who makes 500,000 dollars?

3) Should the ceiling should either be raised or taken away completely? If taking away the ceiling means that a small business owner now cannot hire more employees, is that still a good idea OR is going from 1% to 2% will cause a small business owner to not hire an employee? That doesn't seem like much to me. How about a CEO making 10 mil a year? Why should his number be capped? Or, a pro athlete making 20 million a year??

That's odd. A CBO report in 2003 doesn't seem to say that at all, Bernie. It seems to say that both Social Security and our Budget are f**ked without changes.The Financial Outlook for Social Security

Social Security is currently running an annual surplus. In 2003, total outlays (benefits plus administrative costs) equaled 4.4 percent of GDP, whereas dedicated revenues (Social Security payroll taxes and the income taxes that some recipients pay on their benefits) equaled 5.0 percent of GDP. CBO projects that at the end of the century, revenues will equal nearly 5 percent of GDP, about the same as today (see Summary Figure 1). Outlays, by contrast, will increase substantially in the near future with the retirement of the baby-boom generation. Annual spending will outstrip annual revenues starting in 2019 and will reach 6.1 percent of GDP in 2030--nearly 40 percent higher than in 2003. With life expectancy continuing to increase, outlays are projected to keep growing thereafter: to 6.3 percent of GDP in 2050 and nearly 7 percent of GDP in 2100. CBO's projection of a widening gap between outlays and revenues is consistent with other analyses of the outlook for Social Security. That gap is the key economic indication of the shortfall between the program's spending commitments and dedicated revenues.

In those projections, annual Social Security outlays exceed revenues starting in 2019, and scheduled benefits cannot be paid beginning in 2053. Shaded areas indicate the 80 percent range of uncertainty around each projection. (In other words, there is a 10 percent chance that actual values will be above that range, a 10 percent chance that they will be below it, and an 80 percent chance that they will fall within the range. Those uncertainty ranges are based on a distribution of 500 simulations from CBO's long-term model.)

a. Scheduled benefits and administrative costs.

b. Payroll taxes and revenues from the taxation of benefits.

_______________________________________________

By running an annual surplus, the Social Security system as a whole currently contributes to reducing the total budget deficit. However, CBO's projection indicates that within the next several years, that contribution will start to decline, and beginning in 2019, the Social Security system will either increase the size of the total deficit or reduce the size of the total surplus. That impact will grow over time as the system's gap widens.

Social Security's finances are often discussed in terms of the trust funds that are used in the federal budget to track outlays and revenues over the life of the program. Those trust funds are mainly accounting mechanisms and contain no economic resources. But they are important from a policy perspective, because Social Security's legal spending authority each year is limited to the total balance of the trust funds. CBO projects that the trust funds will become exhausted in 2052, after which spending authority will be limited to annual revenues--which are projected at that point to equal only about 80 percent of scheduled benefits.

____________________________________________

In Summary: Social Security, as of 2003, was running a surplus. But the surplus only deposits into a "Trust Fund" in theory. In reality, the extra revenue is just taken into the General Ledger to offset additional spending elsewhere in the Government. In other words, it is not being banked for a rainy Social Security day. Each year, Social Security starts out at zero again. Based on that fact, Social Security, in 2019 or about 8.5 years from now, will no longer run a surplus, but will instead begin running a deficit and actually drain on the US Budget. By 2053, we won't be able to actually afford to pay out all of the benefits, not because the actual Trust Fund is drained, but because the theoretical Trust Fund is drained, which is the limit of the current law's ability to repay. In reality, Social Security will have stopped paying for itself for decades.

Think of it this way. I'm running a business. I make $100 a year and spend $90 a year. I have a $10 per year surplus to bank for a rainy day. I take on a contract with Johnny's side business that looks lucrative. It creates an additional $10 surplus per year...for now. Within 2 years, I'm running a personal deficit, spending $120 for every $100 I take in, a $20 deficit. Now, instead of taking Johnny's surplus and keeping it in a separate account to cover Johnny on any rainy days when his revenue is low, instead, I absorb Johnny's surplus into my larger general ledgers' deficit to offset half of it, meaning my general ledger now runs a $10 deficit instead of $20. Don't worry though, Johnny. I wrote down how much I owe you over here on this piece of paper. We'll call it Johnny's Trust Fund. While there isn't anything in it ACTUALLY, I do have a pretty reliable note here of how much it SHOULD be.

10 years pass and now Johnny has $1000 written down in the notepad, but I'm heavily in debt. Johnny starts going into the negative himself and it isn't looking good. He says that I have his $1000 to cover him, but really, I spent it already covering my general ledger debts. I know how much I owe him, but I'm now running a $30 annual deficit. To cover Johnny, I'm going to go another $10 a month in the negative further burying me in deficit spending to $40 a year ($140 in spending on $100 in Revenue) in order to cover him. Sure, I'm reducing the $1000 on the Johnny IOU notepad, but in reality, there isn't anything in there and I have to dip further into my own pocket and borrow more and more money every year to cover this. When is this going to stop?

Bottom line is that at some point, I'm going to have to tell Johnny to take a hike and just negate the $1000 I owe him. Its the only way to make this work and keep my company afloat. My bad for pissing away his money when I should have been keeping it over here for a rainy day, but it is what it is.

 

[Bottomfeeder Sports]

10 years pass and now Johnny has $1000 written down in the notepad, but I'm heavily in debt. Johnny starts going into the negative himself and it isn't looking good. He says that I have his $1000 to cover him, but really, I spent it already covering my general ledger debts. I know how much I owe him, but I'm now running a $30 annual deficit. To cover Johnny, I'm going to go another $10 a month in the negative further burying me in deficit spending to $40 a year ($140 in spending on $100 in Revenue) in order to cover him. Sure, I'm reducing the $1000 on the Johnny IOU notepad, but in reality, there isn't anything in there and I have to dip further into my own pocket and borrow more and more money every year to cover this. When is this going to stop?

When we stop electing those that think every problem can be fixed with a tax cut.

 

[DrJ]

10 years pass and now Johnny has $1000 written down in the notepad, but I'm heavily in debt. Johnny starts going into the negative himself and it isn't looking good. He says that I have his $1000 to cover him, but really, I spent it already covering my general ledger debts. I know how much I owe him, but I'm now running a $30 annual deficit. To cover Johnny, I'm going to go another $10 a month in the negative further burying me in deficit spending to $40 a year ($140 in spending on $100 in Revenue) in order to cover him. Sure, I'm reducing the $1000 on the Johnny IOU notepad, but in reality, there isn't anything in there and I have to dip further into my own pocket and borrow more and more money every year to cover this. When is this going to stop?

When we stop electing those that think every problem can be fixed with a tax cut.

And also stop electing those who think every problem can be solved by cutting a check.Government spending is slated to be about 24% of the GDP by the end of the decade (assuming the GDP grows far greater than most independent projections). And can be expected to continue growing. No matter your tax rate, that spending is unsustainable.

And if you want to raise the rates on the people demanding this government, you're going to have to bump the bottom brackets too. Like the administration tells us over and over again, it's only a small percentage of people that they're targeting. They don't want everyone to have to pay for this government they're demanding, just a select few.

 

[Bottomfeeder Sports]

10 years pass and now Johnny has $1000 written down in the notepad, but I'm heavily in debt. Johnny starts going into the negative himself and it isn't looking good. He says that I have his $1000 to cover him, but really, I spent it already covering my general ledger debts. I know how much I owe him, but I'm now running a $30 annual deficit. To cover Johnny, I'm going to go another $10 a month in the negative further burying me in deficit spending to $40 a year ($140 in spending on $100 in Revenue) in order to cover him. Sure, I'm reducing the $1000 on the Johnny IOU notepad, but in reality, there isn't anything in there and I have to dip further into my own pocket and borrow more and more money every year to cover this. When is this going to stop?

When we stop electing those that think every problem can be fixed with a tax cut.

And also stop electing those who think every problem can be solved by cutting a check.Government spending is slated to be about 24% of the GDP by the end of the decade (assuming the GDP grows far greater than most independent projections). And can be expected to continue growing. No matter your tax rate, that spending is unsustainable.

And if you want to raise the rates on the people demanding this government, you're going to have to bump the bottom brackets too. Like the administration tells us over and over again, it's only a small percentage of people that they're targeting. They don't want everyone to have to pay for this government they're demanding, just a select few.

You are sort of correct that we have never been able to sustain tax collections above 20% or so so despite the rates. And just hitting the top 5% isn't going to cut it. But unless we make the rates high enough that it hurts, yes hurts the individuals, hurts the nation's economy we won't get out of this mess - including spending too much on the wrong stuff until it collapses on us and then it will really hurt.

 

[Bottomfeeder Sports]

...And if you want to raise the rates on the people demanding this government, you're going to have to bump the bottom brackets too. ...

But this is wrong. The spending that is killing us is not the for the poor. (Though to be fair some of the spending is sold as being for the poor.)

 

[DrJ]

...And if you want to raise the rates on the people demanding this government, you're going to have to bump the bottom brackets too. ...

But this is wrong. The spending that is killing us is not the for the poor. (Though to be fair some of the spending is sold as being for the poor.)

Whether or not these programs help them or not, they're part of the group demanding these services and many of them pay little in the form of federal income taxes. If we go by your premise that the people demanding these services should have to bear the actual cost, they're included. It's very easy to demand government that you want others to pay for.

 

[DrJ]

Also, allow me to rephrase that. You have to raise all tax brackets, and not just on the couple percent of top income earners. I'm not trying to single out the bottom bracket, but we also shouldn't single out just the top couple percent if we're going after the people demanding these services.

 

[Captain Quinoa]

The Real Story

By PAUL KRUGMAN

Published: September 2, 2010

When Mr. Obama first proposed $800 billion in fiscal stimulus, there were two groups of critics...

...The other group, which included yours truly, warned that the plan was much too small...

Following the inflation vs. deflation debate over the last year, Krugman has been right every step of the way. I wish we would have listened to him on the stimulus

yes Captain Hindsight Paul Krugman. So $800 billion was too small Paul? Weird, because you thought it needed to be "at least $600 billion" -- and by my math $800 billion > $600 billion.Stimulus Math

 

[Bottomfeeder Sports]

...And if you want to raise the rates on the people demanding this government, you're going to have to bump the bottom brackets too. ...

But this is wrong. The spending that is killing us is not the for the poor. (Though to be fair some of the spending is sold as being for the poor.)

Whether or not these programs help them or not, they're part of the group demanding these services and many of them pay little in the form of federal income taxes. If we go by your premise that the people demanding these services should have to bear the actual cost, they're included. It's very easy to demand government that you want others to pay for.

We throw crumbs to the poor not because they demand it at the ballot box, but because if we didn't they would take it from us via crime. Welfare is cheaper than police and has effectively killed the revolutionary dreams of the Marxists. We also link most forms of welfare such that the money goes to actually pay the slum lords, the corporate farmers, big pharm, etc. In other words the actual spending goes to those that do vote and participate in the political process in a significant enough manner to demand stuff. Those aren't the poor who have traditionally been paying their own freight and more via the payroll taxes.

 

[pantagrapher]

The Real Story

By PAUL KRUGMAN

Published: September 2, 2010

When Mr. Obama first proposed $800 billion in fiscal stimulus, there were two groups of critics...

...The other group, which included yours truly, warned that the plan was much too small...

Following the inflation vs. deflation debate over the last year, Krugman has been right every step of the way. I wish we would have listened to him on the stimulus

yes Captain Hindsight Paul Krugman. So $800 billion was too small Paul? Weird, because you thought it needed to be "at least $600 billion" -- and by my math $800 billion > $600 billion.Stimulus Math

Is that supposed to be a gotcha?

Right now, we’re at 6.5% unemployment and a 3% output gap – but those numbers are heading higher fast. Goldman predicts 8.5% unemployment, meaning a 7% output gap. That sounds reasonable to me.

He based that early figure on estimates of 8.5% unemployment. Those unemployment estimates were obviously low. So he later revised his number upward.

 

[Bottomfeeder Sports]

yes Captain Hindsight Paul Krugman. So $800 billion was too small Paul? Weird, because you thought it needed to be "at least $600 billion" -- and by my math $800 billion > $600 billion.

Stimulus Math

4% of GDP would suggests 4% in one year, not over 10 wouldn't it?As of right now the stimulus has accounted

for $233 in tax reductions (do we count that as spending?)

$145 for projects

$143 for entitlements (were we going to be able to avoid this?)

18 months in (give or take) and we are at about $500 billion.

 

[DrJ]

...And if you want to raise the rates on the people demanding this government, you're going to have to bump the bottom brackets too. ...

But this is wrong. The spending that is killing us is not the for the poor. (Though to be fair some of the spending is sold as being for the poor.)

Whether or not these programs help them or not, they're part of the group demanding these services and many of them pay little in the form of federal income taxes. If we go by your premise that the people demanding these services should have to bear the actual cost, they're included. It's very easy to demand government that you want others to pay for.

We throw crumbs to the poor not because they demand it at the ballot box, but because if we didn't they would take it from us via crime. Welfare is cheaper than police and has effectively killed the revolutionary dreams of the Marxists. We also link most forms of welfare such that the money goes to actually pay the slum lords, the corporate farmers, big pharm, etc. In other words the actual spending goes to those that do vote and participate in the political process in a significant enough manner to demand stuff. Those aren't the poor who have traditionally been paying their own freight and more via the payroll taxes.

Actually, they're the ones that get the greatest benefit out of these payroll taxes. Mostly in the form of disability payments, but they're also the ones that get the most out of it as a retirement fund as well. I will agree that this is the one area they're paying closest to their share. Let's make that the case for the rest of federal spending. Everyone is demanding these services - let's make everyone pay for them.

 

[Bottomfeeder Sports]

Also, allow me to rephrase that. You have to raise all tax brackets, and not just on the couple percent of top income earners. I'm not trying to single out the bottom bracket, but we also shouldn't single out just the top couple percent if we're going after the people demanding these services.

Yes. You mainly have to hurt the masses in the middle that already pay for most things - which is why it doesn't happen.

 

[DrJ]

Also, allow me to rephrase that. You have to raise all tax brackets, and not just on the couple percent of top income earners. I'm not trying to single out the bottom bracket, but we also shouldn't single out just the top couple percent if we're going after the people demanding these services.

Yes. You mainly have to hurt the masses in the middle that already pay for most things - which is why it doesn't happen.

You mainly have to hurt everyone. The way our political system is at this point, you have close to 50% on one side and close to 50% on the other side. And most of them are firmly entrenched in their position so you only have a few percent left over to swing one way or the other. So you can't win an election by hurting any sizable group there is. A percent here and there is enough to win/lose an election. Piss off some poor people, they can swing an election. Piss of some middle class people, they can swing it. Piss off some old people, they can swing it too. The easiest way to not piss anyone off is to give them a bunch of stuff and not expect them to pay for it. That's why it's never going to happen. And also why stuff like Obama's "I'm going to give you everything under the sun, and only charge the top couple percent for it" is such a popular campaign promise. Or Bush's "I'm going to give you everything under the sun, and even cut you a check for it!" Going back on "Read My Lips, No New Taxes" got Bush I kicked out of office. Clinton was OK though because he only raised taxes on those evil rich people. Make them pay for the services we demand is a winning strategy.

 

[pantagrapher]

1938 in 2010By PAUL KRUGMANPublished: September 5, 2010 Here’s the situation: The U.S. economy has been crippled by a financial crisis. The president’s policies have limited the damage, but they were too cautious, and unemployment remains disastrously high. More action is clearly needed. Yet the public has soured on government activism, and seems poised to deal Democrats a severe defeat in the midterm elections.The president in question is Franklin Delano Roosevelt; the year is 1938. Within a few years, of course, the Great Depression was over. But it’s both instructive and discouraging to look at the state of America circa 1938 — instructive because the nature of the recovery that followed refutes the arguments dominating today’s public debate, discouraging because it’s hard to see anything like the miracle of the 1940s happening again.Now, we weren’t supposed to find ourselves replaying the late 1930s. President Obama’s economists promised not to repeat the mistakes of 1937, when F.D.R. pulled back fiscal stimulus too soon. But by making his program too small and too short-lived, Mr. Obama did just that: the stimulus raised growth while it lasted, but it made only a small dent in unemployment — and now it’s fading out.And just as some of us feared, the inadequacy of the administration’s initial economic plan has landed it — and the nation — in a political trap. More stimulus is desperately needed, but in the public’s eyes the failure of the initial program to deliver a convincing recovery has discredited government action to create jobs.In short, welcome to 1938.The story of 1937, of F.D.R.’s disastrous decision to heed those who said that it was time to slash the deficit, is well known. What’s less well known is the extent to which the public drew the wrong conclusions from the recession that followed: far from calling for a resumption of New Deal programs, voters lost faith in fiscal expansion.Consider Gallup polling from March 1938. Asked whether government spending should be increased to fight the slump, 63 percent of those polled said no. Asked whether it would be better to increase spending or to cut business taxes, only 15 percent favored spending; 63 percent favored tax cuts. And the 1938 election was a disaster for the Democrats, who lost 70 seats in the House and seven in the Senate.Then came the war.From an economic point of view World War II was, above all, a burst of deficit-financed government spending, on a scale that would never have been approved otherwise. Over the course of the war the federal government borrowed an amount equal to roughly twice the value of G.D.P. in 1940 — the equivalent of roughly $30 trillion today.Had anyone proposed spending even a fraction that much before the war, people would have said the same things they’re saying today. They would have warned about crushing debt and runaway inflation. They would also have said, rightly, that the Depression was in large part caused by excess debt — and then have declared that it was impossible to fix this problem by issuing even more debt.But guess what? Deficit spending created an economic boom — and the boom laid the foundation for long-run prosperity. Overall debt in the economy — public plus private — actually fell as a percentage of G.D.P., thanks to economic growth and, yes, some inflation, which reduced the real value of outstanding debts. And after the war, thanks to the improved financial position of the private sector, the economy was able to thrive without continuing deficits.The economic moral is clear: when the economy is deeply depressed, the usual rules don’t apply. Austerity is self-defeating: when everyone tries to pay down debt at the same time, the result is depression and deflation, and debt problems grow even worse. And conversely, it is possible — indeed, necessary — for the nation as a whole to spend its way out of debt: a temporary surge of deficit spending, on a sufficient scale, can cure problems brought on by past excesses.But the story of 1938 also shows how hard it is to apply these insights. Even under F.D.R., there was never the political will to do what was needed to end the Great Depression; its eventual resolution came essentially by accident.I had hoped that we would do better this time. But it turns out that politicians and economists alike have spent decades unlearning the lessons of the 1930s, and are determined to repeat all the old mistakes. And it’s slightly sickening to realize that the big winners in the midterm elections are likely to be the very people who first got us into this mess, then did everything in their power to block action to get us out.But always remember: this slump can be cured. All it will take is a little bit of intellectual clarity, and a lot of political will. Here’s hoping we find those virtues in the not too distant future.

 

[tommyGunZ]

Krugman