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I don't understand what you mean. If you're worried about individuals losing everything, the government could cap the proportion of total savings available for investment (e.g. 25%). The government could also regulate the diversity of investments (e.g. no more than 1% of the total investment fund in any one company).
This is the crux of the issue, I think. It's why I think cutting defense spending and raising taxes on the rich are not sustainable ways of funding Social Security. If the average age stopped rising, then they would be sustainable ways of funding Social Security. The current evidence suggests that the average age will continue to rise, so I think it's perfectly legitimate to seek reform on that basis, even if the projection turns out to be incorrect. In any case, I do think it would be better to move to a system that is not so vulnerable to changes in demographics.
2037 is when the Trust Fund is projected to be exhausted (ie. there will be no assets left to fund Social Security). Annual surpluses on Social Security are projected to end in 2016.
Whether the top-ups fund themselves depends on how much the government decides to pay out in top-ups. For any given monthly payment upon retirement, the system I proposed requires less to be deducted from payrolls in the form of compulsory savings than is deducted from payrolls in the form of payroll taxes under the current system. This is because the savings (and investments) in the proposed system make a return. The difference between what is taken in payroll taxes under the current system and what would be taken in compulsory saving under the proposed system can be taxed to fund the top-up.
It is in the US, which is why the annual balance (receipts from payroll taxes minus expenditure on benefits) on Social Security exists. If it was part of the general budget, an annual balance on Social Security wouldn't make any sense. Nevertheless, I think I understand what you mean: you want other tax revenue to go towards funding it.
The system is self-financing because the savings and investments earn a real return. In the literature, this is referred to as a fully-funded system.
The only profit based part of the system is the return on investments, and that part is entirely voluntary; a worker is under no obligation to invest his savings. The main part of the system is compulsory savings, and I don't think that can really be described as for profit. Also, I don't understand how benefits will decrease if the savings are accruing interest.
No, but the real return on savings and investments makes the demographic problem irrelevant.
The link between higher tax rates and lower economic growth is one of the most theoretically and empirically robust associations in economics. For example, a recent study of the tax structure of 21 OECD countries showed that (from largest effect to smallest) higher corporation taxes, income taxes, consumption taxes and property taxes all have a negative effect on GDP per capita.[1] Now, of course, some level of taxation is necessary for social welfare and that is more important than growth, but that doesn't change the fact that taxes generally have a negative effect on growth.
[1] http://econpapers.repec.org/paper/oececoaaa/643-en.htm
Yes. Stocks have historically outperformed government bonds over every time horizon greater than 6 years.
This is not "trickle down economics", it's standard macroeconomic theory, shared by Keynesians, neoclassicals, Austrians, the Chicago school, et al. Do you know of any studies showing a negative relationship between increased rates of personal saving and long run economic growth?
Savings almost always earns an annual return and always offer a long term return, without exception. Find me a period greater than a few years where saving did not earn a real return. Stock market investments are more volatile, but they outperform savings over every time horizon greater than 5 years. As for the bank taking the return, I'm not entirely sure what you mean, but the government could surely just ban this?
Exactly, hence my "greater than 5 years" comment. I don't think it's wise to ignore the large long term returns on stocks because of temporary blips.
This system could be implemented in a country with a highly progressive tax structure or a highly regressive tax structure; it doesn't make any difference to the system itself. Would you accept the system if the effective marginal tax rate on the rich didn't decrease?
How do the banks make money from them? The only thing I can think of is through charging management fees for investments, but investments are a voluntary part of the system, so they will not be making money from poor people "by law". If you disagree with charging management fees then the government could ban them, in which case I don't see any way for the banks to make money from the poor by law.
I don't know what that means.
So all you're saying is that fiscal policy should be used to achieve macroeconomic objectives? Fiscal policy can do that, but it's very inefficient. It's much better to use monetary policy, and of course if monetary policy is operating properly fiscal policy will have no effect. For example, suppose the central bank aimed to keep total nominal spending (P*Q, which per the equation of exchange is equal to M*V) in the economy growing on a 5% growth path. If the government increased its own spending and through the fiscal multiplier increased total nominal spending above target, the central bank would contract the money supply to put the economy back on its target path. Given the deadweight loss associated with crowding out due to deficit spending, I can't see any reason to favour fiscal policy over monetary policy. I think it's a much better policy to have a permanently balanced budget and a good monetary policy (preferably a nominal GDP target).
So you admit that you don't know what the difference between micro and macro is?Oh, an argument assuming that the central bank is really an entirely separate entity from the government, that's cute; but I didn't make such a claim, so if your argument has to rely on that, it's a bit problematic...
If you are unwilling to admit that you don't know the difference between micro and macro, explain what you think the difference* is. I pose that question also to Bud Struggle.
*TOP SECRET HINT: THIS HAS ACTUALLY SOMETHING TO DO WITH WHAT I SAID IN THIS THREAD!!!!1
Well I did study economics for 5 years, so I think I have some idea of the differences between the two. I just don't remember it ever being explained in terms of conservation of energy. Can you elaborate?
I don't understand why you are being so hostile. I was merely making a distinction between monetary policy and fiscal policy, as is standard practice. I didn't say anything about whether the central bank is a separate entity from the government, and I wasn't relying on such a claim for anything. All I argued was that fiscal policy is ineffective when monetary policy is operational. Are you disputing this?
The difference I think you're alluding to is that there is an upper bound on total nominal expenditure at the micro level, while there is no upper bound on total nominal expenditure at the macro level. Is that what you're trying to say?
Last edited by inyourhouse; 2nd September 2010 at 19:53. Reason: grammar
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[FONT=Verdana]Considering the amount of money that would be saved by cutting defense and the amount of money that would be raised by raising taxes on the rich, yeah, it would be a long term solution.[/FONT]
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[FONT=Verdana]Average age cannot raise indefinately.[/FONT]
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[FONT=Verdana]If nessesary yes, why is it ok to take out of it, but not ok to put into it?[/FONT]
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[FONT=Verdana]Actually the first part is untrue, after 2037, the trust fund will no longer have extra in it, but still around 80% of benefits would still be available to give out, WITHOUT any outside increases and WITH the current raiding that happened, and WITHOUT getting rid of caps.[/FONT]
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[FONT=Verdana]Adusted for inflation its very unlikely that a savings account will yield any actual retrun. Also the Trust fund is also invested (safely, not up to bank managers looking for a profit). [/FONT]
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[FONT=Verdana]As far as the difference, I doubt there would be that much if any, so your gonna have to raise taxes anyway.[/FONT]
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[FONT=Verdana]Also, this is going to be a HUGE regressive system, i.e. where the poor have to pay more of a percentage than the rich of their income, in order to get even slightly close to the type of retirement the rich have.[/FONT]
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[FONT=Verdana]Again this is typical right wing, change the system to benefit the rich, enrich capitalists, punish the poor and take democracy out of the picture.[/FONT]
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[FONT=Verdana]If its put in savings acounts, not really, if its put in the stock market or derivatives or anything, theres going to come a time where it will be essencially risked away and will disapeare with a financial crash. [/FONT]
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[FONT=Verdana]The top ups are not self-funded, unless you increase taxes.[/FONT]
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[FONT=Verdana]And it creates a ton more problems, and essencially takes away social security (its not social security any more than the mandate is public healthcare).[/FONT]
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[FONT=Verdana]I checked the link and there was not graph or anything. What I do know is iceland is'nt doing so well, neither is argentina and the US, all of which adopted the milton freedman approach to economics.[/FONT]
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[FONT=Verdana]However to suggest that corporations would simply give up on making money even though their taxes are raised and might thus have to make less profits is rediculous.[/FONT]
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[FONT=Verdana]Except that every couple years people will loose their pensions when the market crashed.[/FONT]
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[FONT=Verdana]No the idea that wall street having more money will be good for everyone.[/FONT]
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Your average savings account has 2% interest, and your average inflation rate is around 3%, so no.
As far as stock markets, every couple years your going to have everyone loosing their pensions (and bankers getting rich).
As for the bank taking the return, what I mean is when they make an investment they pocket most of the return, giving you a small part of it, thats how bankers make money.
ITs not temporary blips, the stock market failed in 1930, due to heavy intervention it survived, in the 80s when it was deregulated it started to fail again in the 2000s. The stock market is'nt overall stable. Capitalism is a failing system.
No because the system itself IS a sort of regressive tax, also no, unless the tax rate actually because progressive I'm not gonna except it, the status quo is radically regressive.
Theres a reason banks accept savings accounts, because they make money. How are you going to get banks to play along with the program unless they are going to make money.
Yah privatizing social security is bullshit. It ought to be done away with all together.
Resolve to serve no more, and you are at once freed.-Étienne de La Boétie
Nobody has any idea what it is you are talking about.
lol so goddamn cute
I'm on some sickle-hammer shit
Collective Bruce Banner shit
FKA: #FF0000, AKA Mistake Not My Current State Of Joshing Gentle Peevishness For The Awesome And Terrible Majesty Of The Towering Seas Of Ire That Are Themselves The Milquetoast Shallows Fringing My Vast Oceans Of Wrath
O RLY? Let's take a look at an earlier post of yours: Translation:5 years of economics, huh.Originally Posted by inyourhouse
The problem with claims like "it would be better to move to a system that is not so vulnerable to changes in demographics" (inyourhouse) or "people need to grow up and take care of themselves" (Bud Struggle) is that they don't make sense from the bird's eye view.
When you talk with an individual it can be sensible advice to tell him to put more aside for retirement than others if he is in the privileged position that he can afford it in the first place, so that he may enjoy a higher standard of living in retirement than others. Now take the bird's eye view. When people grow too old to work they are dependent on other people. Does it go into your head? When people grow too old to work they are dependent on other people, no matter how the system of retirement payments is structured. What old people will get in the future will depend on the level of productivity in the future and what the political decision about how to divide that cake will be.
Yes, payroll taxes will still be sufficient to cover benefits if benefits are reduced, but why would a socialist be in favour of that? Under the system I'm proposing, it's not necessary for benefits to be reduced in the long term.
The average annual interest rate on savings between 1962 and 2009 (ie. 47 years, which is the period between adulthood and retirement) was approximately 5.52%[1]. Over the same period, the average annual inflation rate was approximately 3.63%[2]. So the average annual real return on savings was 1.89% (5.52%-3.63%). That calculation was based on short-term savings rates (using Treasury bills as a proxy). However, the accounts in the system I proposed would be more like long term time deposits and would thus attract a higher interest rate.
[1] http://www.federalreserve.gov/releas.../H15_TB_Y1.txt
[2] http://research.stlouisfed.org/fred2/data/GDPDEF.txt
The Trust Fund is invested in government securities so it's essentially just a claim on future tax receipts, which makes it vulnerable to the demographics problem.
If that is the case, at least the tax rises would be less than the amount necessary to keep the current system functioning.
It would be a proportional system (like the current system), where a flat rate is paid on all payrolls into a savings account up to a certain amount (ie. a cap). Essentially it's identical to the current system, except the returns are higher. You could even tax payrolls above the cap to help fund top-ups.
That's because it's just an abstract from the full article.
Anecdotal evidence is not a firm basis for an argument. A scientific analysis shows that higher tax rates lead to lower economic growth.
Nobody has suggested that corporations simply stop making money when taxes are raised.
The DJIA, the NASDAQ and the S&P500 have never fallen to 0. In any case, the investment would be entirely voluntary. Those who wish to do so can simply retire based on what they have earned through interest on their savings.
I never said that Wall Street having more money will be good for everyone. I said that higher rates of saving and investment would benefit both Wall Street and the general population. It would be fallacious to conclude from that that anything that benefits Wall Street benefits the general population, which is clearly false.
Where did you get these figures? They differ substantially from the ones I listed above.
Management fees, yes. The government could cap this amount, though (e.g. a maximum of 5% of the total return goes to the bank).
They were temporary blips, hence why the average annual return on stocks over long periods is positive. The stock market is thus stable in the long run, as is capitalism (hence growth being positive in the long run). This is another issue, but what makes growth and the stock market more volatile is poor monetary policy. I'm in favour of the Federal Reserve targeting nominal GDP growth so as to stabilize aggregate demand, which should make recessions much smaller and shorter.
Yes, they make money because they loan out the funds used, but they do not take money from the saver. The saver always makes a return in the long run.
It's clear that I was merely referring to operational independence, which is standard practice in developed economies. In other words, the central bank tries to hit some target (e.g. 2% long run inflation) independent of other factors, such as fiscal policy. Under such a scenario, fiscal policy is ineffective. Yes, you could end central bank independence and control monetary policy directly through the Treasury (although this is vulnerable to abuse for political gain), but the point still stands. If the Treasury is aiming for some target through monetary policy, then that will offset whatever fiscal policy decisions they make. The only way fiscal policy can be effective is if monetary policy has no target, which seems like a dangerous and inefficient method of stabilizing aggregate demand.
To some degree any system will be, yes, but every system is not equally vulnerable to demographic change. The system I'm proposing is much less vulnerable because only the top-up part is effected by future taxing and spending decisions. The accumulated savings and investments are there no matter what happens demographically. I'm still not sure about what this has to do with the conservation of energy, however.
Yes, a system of saving which people pay into in the furtherance of retirement benefits should be done away with. How do you plan on compensating those who have paid into the system or those who willingly agree to it?
Because keeping the funds in democratic control is more important, but I'm not supporting cuts even in 2037, at that type thats when the government should start subsidising the social security deficit (top ups, except its not in wall streets hands).
At the cost of loosing democratic control.
But its a personal account, meaning the the money is'nt pooled, meaning the rich get WAYYY WAYYY more than the poor.
If empirical evidence is consistant, yes it is.
But the argument is that with taxes, corporations would be disinsnetivized to invest, if there is a market that is profitable, they'll invest, whether the profit is big or small.
When banks crash (which happens every couple decades), the tax payer has to bail them out anyway.
just based on most savings accounts in major banks.
If a bank is'nt making a real profit it won't participate in the program.
BTW, why not just allow the government to invest social security elsewhere?
When the stock market crashed in 1930, huge regulations were put in place that helped it survive, when it was deregulated, 20 years later it crashed again. The stock market is'nt sustainable without huge government regulation.
But heres a question? Why not juts allow the government to invest social security, in certain investments, that way higher returns, and we keep democratic control?
Social Security payments need to be abolished. Increase taxes on the rich to pay for the benefits.
Ah, you're finally rejecting liberal market reform. Refreshing!
I see nothing reformist about the complete abolition of the State. If anything, my advocacy of Social Security benefits, at least in the short term, they would be unnecessary in a truly Freed Market, is reformist.
