Immediate and Medium Term Debt and Deficit Problems-Becker

 

As Posner indicates, the US is facing an immediate debt problem, a medium term deficit problem, and long-term debt and deficit problems. We have discussed several times the long-term fiscal problems (see, for example, my discussions on 11/07/10 and 7/17/11), so I will concentrate here on the shorter-term deficit-debt issues.

With the sole exception of the mid-1990s, the federal debt ceiling has always been raised on time during the past 60 years to accommodate the growing level of the debt. Although little time remains to raise the ceiling I do not believe either party will risk the political fallout from not adjusting the ceiling before the government effectively defaults on its obligations. Certainly Republicans remember the political cost to them after the Gingrich-inspired shutdown of the federal government in 1995. So I would be quite surprised if a deal is not reached this time before the US government is forced to delay payment on some of its implicit obligations, such as Medicaid and Medicare payments.

Of course, an absolute ceiling on the debt that is just raised continually makes little economic sense. Clearly, the relevant size of government is not measured by the absolute level of its debt since large economies tend to have much more debt than do small economies.  Better metrics of the debt burden would be the ratio of debt to GDP, or the ratio of interest payments on the debt to GDP, or perhaps the share of interest payments in total government spending.

Even the ratio of government debt to GDP does not measure the size of the government’s impact on the economy. The present and future impact is better measured by the ratio of government spending to GDP, including any trend in this ratio, plus various harder to calculate measures of the magnitude and scope of government regulations in product, labor, and capital markets.

The major legitimate concern over the growing federal government impact on the economy comes from the rapid growth in the share of government spending to GDP during the past several years. Moreover, this share is projected to continue to grow in the future unless GDP grows by at least 3% per annum over the next 20 years and effective controls are introduced over entitlements for the elderly.

The share of federal government spending to GDP hovered between 18% and 21% from 1995 to 2007, when it was 19.5%. During the next three years, government spending took off and grew rapidly, GDP stagnated, and the ratio of federal spending to GDP reached 25% in 2009. This share is projected at about 25% in 2011. Some of the growth in federal spending was needed to fight the financial crisis, but much of the increase also reflected the desire of many in control of the federal government to increase its role in the economy.

In a Wall Street Journal op-ed piece by George Shultz, John Taylor, and myself on April 4^th (Time for a Budget Game-Changer”) we lay out a general strategy to gradually lower this share once again to 19.5% by 2021. This strategy reduces government spending by a mere $19 billion in 2011, or only by about 0.1 percentage point of total federal spending. It also allows nominal federal spending to grow on average by 2.7% per year from 2010 until 2021.

Our approach also assumes that nominal GDP will grow by 4.6% during this eleven-year period. Since GDP is assumed to grow considerably faster than government spending, the share of government in the economy is reduced by over 4 percentage points by 2021. If we assume (optimistically) an average inflation rate of 1.7% per year during the next decade, our analysis allows government spending in real terms to grow from its already high level in 2010 by 1% per year until 2021.

The assumed growth in real GDP (after adjusting for the assumed 1.7% annual inflation rate) is a little less than 3% per annum over this period, with about 1% growth per year due to increases in the American population. Three percent per year in real GDP is the long-term growth rate of the American economy since 1880. This is considerably below the usual growth rate of GDP in a decade after a major recession. This is why I believe three percent growth is achievable with tax reform (that would include some tax increases), and with major controls over the growth of spending.

Keeping real federal spending growth to 1% per year will be a huge challenge since entitlements, like Medicare, will grow much faster than that over the next decade without sizable entitlement reforms that greatly cut their cost to the government. Still, the spending growth rate is doable. A major start would be to cut back some of the sizable expansion of federal spending since 2007. That combined with serious reforms that cut government spending on Medicare, especially for the elderly with decent financial means, would go a long way toward keeping the real growth of federal spending in the range of 1% per year for a decade.

Added Monday: first reactions after news surfaced of the possible budget compromise.

The details of the compromise are not yet clear, but apparently Medicare and other entitlements will not be affected, with one exception. Payments to hospitals and insurance companies for the services they provide or finance will be cut, which will either lower the quality of services offered or induce greater waiting times for medical services.

The compromise seems at this point better than doing nothing. But much more will have to be done, rather than simply promised for the future, in order to limit the growth in real federal spending to not much more than 1% per year.

Comments

[Jim]

For the life of me I cannot understand why anyone expects the same folks who got us into this mess are expected to get us out. Maybe the up side is that politicians who cannot spend other people's money might go into another line of work.

[another observer]

“The share of federal government spending to GDP hovered between 18% and 21% from 1995 to 2007, when it was 19.5%.” Becker apparently think that this argues that 19.5% is apparently a good number.
Does this mean 18% in 2000 is clearly to low because the share hovered between 20% and 23% from 1980 until 1995?

[Jim]

It also stikes me that both Becker and Posner have posted on subjects inherently economic but with political analyses inasmuch as whatever objectivity was in economic discussions has no impact on a increasingly virulent partisanship washing over the nation forcing both of the professors to jump into the fetid waters. This is not a criticisim in any guise, just an observation that we are all being sucked into the vortex of contention. For historical reference one might read the preamble to The Declaration of Independece especially regarding the grievances against King George ( anaagous to our current federal government).

[El-Greco]

When economic activity is placed under mandatory collective management then everything becomes politics. So everything becomes a political debate because there is a direct and/or indirect political gate to pass through in order to engage into any economic activity. While this ubiquitous politicization of everything through government interference has been common throughout the rest of the world, it is a relatively new phenomenon in America. But apparently that is what the American people want and have thus been voting accordingly. Politicians are more than happy to oblige since government economic interference is, almost by definition, the product politicians offer.

Needless to say, real productivity suffers and our competitors have no time to take prisoners or be accommodating towards Americans who have had and still have a superior standard of living compared to the rest of the world. But that is changing...
By behaving like the rest of the world, American voters have all but eroded the once large margin of advantage they inherited from their forefathers in a one time large installment of freedom. As many have pointed out, the lights are dimming for American prosperity.

[Jack]

Jim..... take heart! Many who got us into this mess are no longer in office!

[Jack]

Jim: It's not surprising to me that government will cost a lot more than when the Declaration was written. Consider.... no highways, federal money had yet to be adopted, there was no Wall Street to be watched and "standing armies" didn't exist and were highly suspect. Then there is the D E B T amassed since 1980 when the habit of routinely providing more services than revenue was popularized.

Medical care, for the most part, didn't exist, much less be a part of the Federal budget

Got an exercise for the board...... (and I don't know the answer to this one) compare the total taxes of the EU "socialistic" nations with our total taxes (difficult as state and local differ from EU) PLUS the 17% of GDP that provides spotty H/C coverage with the side benefit of being the #1 cause of personal bankruptcy (and attendant costs) and see whether, "the socialists" or we are bearing the highest tax plus H/C costs.

El Greco! GREAT! Yes! Many of our expenditures do become "political". That because we are a democracy pledged to develop our resources for "the general welfare" of our citizenry.

Without it being quite spoken, we do seem to be in an era of having to decide whether we are to be serfs and pawns of "our?" corporations and "The Market" or a democracy that provides at least something for all of its people.

Exercise? Suppose we have arrived at a level of productivity in which 85% of our workforce (with some help from the half a buck an hour nations) can provide all that is demanded (ie able to be sold) and that 10% or more ARE to be permanently unemployed?

(Note that I don't think we're there yet, in absolute terms, as we're short of labor to take care of our oldsters, and ha! while the "right" likes to claim their IS H/C for all, at the same time they like to claim that ""Obamacare"" will cause Doc and techy shortages. Matter of priorities eh? While we claim teaching and caring for elders or the unfortunate are high callings we reward clever manipulators of "finance" vast multiples their wages, but! with stagnant wages we may well be there in terms of providing what is demanded --- need/wants plus a buck to spare.

[Jim]

Jack,

The grivences against King George and against the Roman empire and against Louis XVI and I suspect against the current federal and state governments were and are categorical; Excess, arrogance, ignorance of history and lack of pragnatism in favor of ideology. On a more basic level, the politicians pandered to interest groups beginning with Woodrow Wilson eventually driving inflation to force globalization of our economy to prevent runaway inflation (Bretton Woods and Nixon's shock). You can argue all you want about taxes but at some level folks stop producing and I suspect we are getting close to that (why hire?) In terms of health care, I still frequent the physician;s lounge and The tenor of the conversations therein are despondent to say the least, not on the basis of income but rather on the basis of overwhelming regulation and interference from government regulators. That cannot be good for the quality of care. Communication is the core of good medical care and when absent or deficient, problems arise. The rational solution to health care is to provide BASIC care to all and let anything above that level be purchased by the folks as they want. Sure that is a two or three tier system and "undemocratic" but clearly we cannot provide all care to everyone lest 80% of the population be either health care providers or patients or both. If you look at the European models, it is clear that they learnrd that lesson some time ago.

[NEH]

El Greco, It ain't called "Political Economics" for nothing and has been since the first days. ;) Such is the real world and a Mixed Economy. As for the value of the "Invisible Hand", we saw what it could produce with the near collapse of the International and Domestic Financial Markets due primarily to fraud and mismanagement. All the other problems of today's Economic Crisis are part and parcel of that which came from drinking the "Kool-Aid" and the subsequent hang-over.

[Jack]

NEH, Ha! Yep! Ol Adam's Invisible Hand does have to be watched closely that it not become the sticky fingered hand of the pick-pocket or con man.

I was surprised that "The Maestro", so long in the midst of our economic affairs admitted to being blind-sided by most of the financial sector acting irrationally in terms of the long term success and reputations of some of the largest and oldest firms in America.

In retrospect it seems obvious for those once concerned of short term profits for the company to cast even flawed policy off and work entirely for the short term profit of themselves, throwing the savaged husk away, or at government's door, once they're done with it and happily golden parachuting off to their retirement compounds with gobs of ill-gained loot while their Republican footmen continue to protect them from paying even the taxes of a working guy getting in a bit of overtime.

Jim: Not sure what over?? regulation and "government interference" it is that they like to lament during coffee breaks, but having spent some considerable time on public policy it's (mostly) been my experience that there are strong social pressures behind nearly all government interventions. Here in AK where oil is king, queen and jack, the brief moratorium on drilling triggered by irresponsible practices and corner cutting by BP in the Gulf, spawned wrathful laments on par with news of the end of the world.

BTW....... how are the new quality control improving "checklists" including the reminder to wash hands between patients and take a LOT better care of and disposal of "sharps" being received? One would (rationally?) perhaps expect that it would be well received in order to lower malpractice claims -- but then many in the oil patch didn't seem to see the government interference in terms of lessening the potential for more multi-billion buck embarrassments such as the Exxon and Gulf "whoopsies".

I'm not sure what "basic" includes, but yeah, those "insurance" policies apparently covering cosmetic and other (seeming) luxuries? On the other hand what is the effect on H/C costs of Americans often having a hard time with proper dental and eye care?

It seems that while comparing private financed care that competition and tech in Lasik has dropped prices dramatically, though with still pretty juicy profit margins, while dental care has soared despite often being paid out of one's after tax pocket.

[Jack]

The best of our Prof's essays this week is that of reminding the "sky is falling" set that our budget problems are divided into immediate, interim and long term problems, and that of the ratio between debt and GDP is far more important than the absolute dollar amount. It seems the media and many of those striving to fan justifiable concern into panic and partisan bonfires like to focus on the $14 trillion, fast moving debt clocks, but with little to no mention of historic ratios of debt to GDP.

Becker even slips into that game a bit with:

"he share of federal government spending to GDP hovered between 18% and 21% from 1995 to 2007, when it was 19.5%. During the next three years, government spending took off and grew rapidly, GDP stagnated, and the ratio of federal spending to GDP reached 25% in 2009. This share is projected at about 25% in 2011. Some of the growth in federal spending was needed to fight the financial crisis, but much of the increase also reflected the desire of many in control of the federal government to increase its role in the economy."

.........."the desire of many in control of the federal government to increase its role in the economy."

Wha?? How many "liked" the "off-budget supplementals" tallying to $4 trillion in 8 years?

Or that we're now stuck with nearly $500 billion each year to service past debt that is over 3% of GDP by itself?

Or that revenue is down even more so than the deep recession would indicate?

Or "liked" paying a year or so of extended unemployment and welfare benefits to 15-25 million struggling working folks?

And yes, as Becker does mention the costs related to the near wholesale corruption of a financial sector gone mad.

The one optional "like" seems the added costs of Medicare prescription drugs -- which, given the cost saving aspects of proper maintenance meds was a good, even overdue idea, but should have been used as with the VA to lower the costs of the drugs via such incredible buying power. Hey, if Big Pharma with the best margins of any sector, is squeezed a bit, that CAN pass along research and (their much larger) advertising costs to those nations currently paying far less than we do here for our own products.

Well perhaps all this attention to the budget could be directed, as in a successful corporate turnaround toward more government efficiency and getting all taxpayers a better return on what they are paying, Ha! than that of pure pork such as the billions for C-17's no one at the Pentagon requested or the two Alaskan porkers of "Bridges to Nowhere".

(while dearest Sarah did kinda, sorta, mebbe say "No thanks" to the silliest one tying Ketchikan to it's tiny airport (earmark switched to a somewhat less porky project) the much larger and more costly one is still alive with various scammers trying to implement the thing by prying more pork out of our state Treasury?

IF...... as so far has not been the case, some of the considerable pain of these years might serve to set us up better for the future that would be constructive. Though Ha! with election season coming? the traditional switch from a generalized, public "concern" over federal spending, to the localized expectation of bringing home bacon, pork and whatever else might be carried off is still the most likely case.

[Pradeep Despandee]

There is no remedy for America. It has gone past the tipping point. Corrective action can no longer be taken in this environment. True corrective action, i.e. re-enabling the spirit of individualism and self reliance that flourished into America’s prosperity in the first place, will never earn majoritarian status amongst the electorate in these irreversible conditions. The only issue remaining is how fast will the decline be.

The movie that naïve Americans are now seeing for the first time, has been played in many parts of the world over and over. It is mostly Americans who are oblivious to it. Expect the general trend in America to be a desperate electorate which will now vote for more and more redistribution and central planning which will then foment even slower economic growth, a new cycle of desperation and a new cycle of distressed calls for even further redistribution, central planning and warfare against Steve Jobs. The vicious cycle America has entered is irreversible but somehow Americans, in their world renowned naiveté, seem oblivious even to its very existence.

Add to that the competitive pressure from a finally emerging world, representing a population 4 times the size of America and Europe combined, which greatly amplifies the effect of bad decisions, and you see why American standard of living compared to the rest of the world is on a fast decline. America is on the same path as Europe. Declining competitiveness leads to desperation, which triggers further anti-competitiveness measures. The effect of America’s decline will be detrimental to the entire world, though citizens of the emerging world who are now learning how to do business with each other and their internal markets will continue to grow – and hopefully learn a lesson from America’s decline.

It is brainless to have to learn from your own mistakes when you could have learned from the mistakes of many others. Unfortunately this is exactly what Americans are about to do, as they enter their irreversible era of decline. Your response to a financial crisis caused primarily by voter requested and politician implemented distortions to economic fundamentals, was exactly in the wrong direction. A textbook case and testament to the vicious cycle you have now entered and which many one countries have traveled down before you.

Apparently, as it turns out, America’s spirit of individualism and self reliance was something that Americans followed out of tradition, rather than rational thought. Oblivious to the fact that it was the cornerstone of aberrant American prosperity, Americans are proceeding to dismantle their core advantage by reverting to the worldwide voter norm of central planning, redistribution and warfare on Steve Jobs. Gone is the American spirit, gone is American prosperity.

For the emerging world, sad goodbye to America (our inspiration) but, at least, happy hello to the world’s resources.

[Jack]

Pradeep! Could you begin numbering your reiterations that we might tell one from another?

Well, my hint for the day is: WERE China an open society, unafraid of diverse opinion, it MIGHT have been they who developed the interenet, Facebook, the I-phone/pad et al.

Cheers! and do, please note that even after the worst attack of feigned " conservatism" and financial marauding that the US is STILL where the exporting nations hope to sell their wares. Jack

[juicy couture outlet]

Every morning when I open my eyes,I stare at the roof so long to think more about myself,what do I want ,what do I need and how do I be like this,does it really I want,need or like.

[juicy couture outlet]

I guess I must do some change to make it different of the rest of my life,let everyday become more significent!!!

[Pradeep Despandee]

The best thing would be to re-read these comments in 5-10-15 years; when the wisdom of hindsight will render clear what the underlying central theme was, vs. the distractions of political minutiae wrapped in economic jargon – a dog chasing his tail in pursuit of hippie dreams, perpetual machines of prosperity through an organized and more relaxed centrally planned economy. Even the IMF, a European thinking dominated organization after all, seems to acknowledge the central theme:

http://www.marketwatch.com/story/imf-bombshell-age-of-america-about-to-end-2011-04-25

But the exact point at which China overtakes the US economy (and the sensationalistic name it is given as “end of age of America”), whether 2016, 2020 or 2025 means little, other than being a symbolic milestone. The overriding calamity for American prosperity is the ongoing constant general change of guard now happening between the emerging world of finally (at least partially free) 3 billion people and the less than 1 billion suiciding Westerners.

The overriding theme is that following the European policies of burdening the most productive to support indolence and give the illusion of comfort to the majority, is the textbook suicide path to meeting the challenge that you face from the emerging world.

By following European policies, the US will predictably stagnate along a pathetic 2% European level growth trendline, just like the rest of Europe. In a world that is growing by 4-5% annually (it is more revealing to refer to the world average as opposed to the economies of China, India, Brazil and a few others who are growing even faster) growing by 2% marks a deterministic path to decline.

Do I think American voters will take corrective action? No.

The American electorate, in the ensuing desperation, will fist exhaust all hope that embracing the European welfare state will not bring economic decline, before they finally give up, just like Europeans will – probably before the Americans do. But, by then, as all historical evidence suggests, it will be too late -- way too late. Virtually no country has ever reversed course from such a fate. Collapse and rebirth have been the only scenarios or return to growth and improving economic fortunes. At best, what you can hope for, is a French style equilibrium of constant decline. But even that seems like a very high bar at this point.

American capitalism was what allowed an otherwise mediocre population (by international comparison) to enjoy the highest prosperity on earth. With that element now apparently irreversibly gone, welcome to the elephant pit of mediocrity where the much more competent Europeans squander their superior personal competences in what ultimately still is an unstoppable cycle of decline. Under the incentives of same welfare state, expect the more mediocre average American to fare even worse. The end result will be with you before you even quite realize it.

[Jim]

Jack,

Pradeep is probably correct. The marauding marketeers and bankers you seem to have it in for are a small group who at this point don't care about the middle or poor because they are positioning themselves for the ultimate failure of American society. And even if by some magic all of their wealth was distributed to others, it would make little difference. Globalization has put the average American worker in a very bad place and leveling the playing field with class warfare won't fix that. When 50% of folks who file a federal income tax have no income tax liability, why would they vote to change that and why would the other half work harder to pay more. And of course the emerging nations want to sell here and we want to buy. If all of those goods and services were produced here we would either be paying 2$ per day for labor or our inflation rate would jump to 40% per year. That may happen anyway as the other nations labor costs rise. The point is, I think, that the standard of living in the USA is coming down and the decline is likely to continue both for structural economic reasons and for the sociological-political reasons Pradeep cites. The marauders have simply seen the situation and taken advantage with the aid of a political class taking advantage of their own situation at the public trough.

[NEH]

The last few comments remind me of the mind set of the Axis powers regarding the U.S., "... the U.S. is a weak willed and ignorant Nation destined to fail..." OK - Right! Historically, that turned out to be false. Just as the "Late, Great United States is dying and doomed" may very well be. It's all about Fortune, Destiny and Lot. Which are not immutable and unchangeable. The National Destiny has always been in our hands and always will be. We just need to make the right decisions and act at the right time. Which scares the bejesus out of those who would like to see us trip up and fail. And are doing their utmost to try and trip us up...

As Pogo observed long ago, "We have met the enemy and he is us".

[Jim]

NEH,

Well spoken but can the "us" change course in order to preserve our forefathers heritage (the good parts anyway). And who will lead us in that direction. Certainly not the present gang in Washington. I for one would not like to see us trip up and fall but am worried that is where we are heading. After all nations do cycle through social swings and some swings can be ruinous.

[Jack]

Jim... Thanks but much of what you put forth seems more "urban myth" than fact. Let's take a look:

" The marauding marketeers and bankers you seem to have it in for are a small group who at this point don't care about the middle or poor because they are positioning themselves for the ultimate failure of American society."

.......... "having it in for them" is more than a bit over the top. Just as a sovereign nation SHOULD have control of its borders and uninvited immigrants, so too must a society protect itself from those who've gone rogue and begun feeding on our society rather than equitably exchanging value ADDED goods and services at non-usurious profit margins.

"And even if by some magic all of their wealth was distributed to others, it would make little difference."

........ I wrote about that here recently. Truth is HAD the "rising tide" of a doubling of productivity "lifted ALL of the boats" on the same income disparity ratios of pre-1980, the wealthy would still be VERY wealthy, but 90% of US households would have $10,000 per household more than is the case today. (Some at the lower levels would have $7,000...... a lot at lower levels) With that far more rational income distribution it would no longer be a cruel joke for a President to suggest "go shopping" even at a time when the household equities of many were wiped out and few escaped some considerable losses.

"Globalization has put the average American worker in a very bad place and leveling the playing field with class warfare won't fix that."

.......... Truth is that AVERAGE per capita incomes, while not growing as we'd hoped, are still as they were. In this "global competitiveness" era, in which corporations and wealthy individuals ARE benefiting mightily from taking their operations offshore....... why is the litany all about carving a bit more off the mail room clerk? pounding down the token wages of the min wage earners? or slashing away at the (also stagnant in most cases) wages of our union craftsmen whose productivity has soared over the decades?

The UAW for example assembles a car in just 35 man hours, say even a $50 wage package is $1,750 for a product that sells for an average of $20-25,000. What "competitive gain" is to be achieved by squeezing 10% more out of 'em?

And.......... of course! with CEO and upper "management?" compensations having soared from 40 times worker pay to over 400 times that today........ why (pray tell) is that massive overhead not "on the table" in discussions relating to competition and pounding down product prices??? Has "managerial genius" become 40 times more scarce over these last decades of improvements in higher education and a doubling of productivity??

"When 50% of folks who file a federal income tax have no income tax liability, why would they vote to change that and why would the other half work harder to pay more."

......... Indeed! As discussed above, back in those days before 1980 when the incomes disparity was MUCH less, even with a higher rate of progressivity the tax burden WAS shared more equitably. But! one thing IS certain!

Even with a low rate of progressivity, it's very simple math to see that those garnering most of the income "should" pay most of the taxes. Apparently though, the news of America's richest 400 families (including WMT heirs who pay their "valued associates" so poorly that we tax payers have to subsidize them with a Billion/year of welfare benefits) ponied up only 15% of their truly amazing levels of income. And, hey! WERE the incomes disparity as they were pre-1980 most families would be kicking in 20% of their extra $10,000 per household.

"And of course the emerging nations want to sell here and we want to buy."

.......... Indeed! In one manner or another the US has typically benefited from low paid "stoop" labor from those wealth building centuries of slave trade in the cane sugar, rum for slaves, slaves for cotton era, to "Chinese coolies", Irish and Poles building our great railways to advantaging ourselves with the labors of a revolving set of "emerging nations". Still, given the hand we have to play, I'm pleased that we can provide a market for the hard working Chinese who've suffered in poverty for so long and for those other trading partners around the world.

As many here likely know we import only a very small percentage of what we consume here and after subtracting out what WE export, the resulting trade deficit of $600 billion or so is hardly "nation wrecking". WERE we to execute on a forward looking energy policy worthy of the name that left us less vulnerable to being jacked-up by a "futures market" jiggered "world price" for oil we could likely reduce our trade deficit by $300 billion in a fairly short time, AND at the same time, make our products more competitive by using less overall energy per GDP$ and turning to cheaper, domestically produced NGas, wind and other more sustainable, domestically produced alternatives.

"40% inflation?" I recently invited friends here to look over their budgets to see what percentage of their budgets they spend on imported goods. As a "foreign car" might be high on the list be sure to discount it substantially even IF it was actually Mfg'd "over there" as dealer costs, US transportation, warranty work and all likely amounts to 40% of a true "import's" cost, while that of a Honda/Toyota et al mfg'd here likely exports less than 20% of sales price. In short...... how far down the list is the "worrisome" cheap clothing and plastic stuff from China?

"The point is, I think, that the standard of living in the USA is coming down and the decline is likely to continue both for structural economic reasons and for the sociological-political reasons Pradeep cites."

......... IF Pradeep isn't some sort of bot...... perhaps we can ask him why our "std of living" is in decline while AVERAGE wages PER capita continue on the general trend of the past. IF he shows up?? I could show him a graph depicting the long upward trend of per capita buying power. We could also show him the one I often post showing our GINI (wage disparity) coefficient being on par with that of Mexico.... which of course would mean, as it the case, the std of living for MOST of us is either stagnant or in decline. But you know...... anything to please the King and the landowning Lords, eh?

Take a peek at the 2nd graph down for a quick illustration?

http://lanekenworthy.net/2008/03/09/the-best-inequality-graph/

"That may happen anyway as the other nations labor costs rise."

........... Yup! Even as we speak I hope that the Chinese and others, focusing so intently on export wealth under the boot heel of their un-democratic minders, will soon find means for their hard won wealth to "trickle down", and especially so before some egotistical twit diverts a lot of it to playing "cold war" games neither they or the more established nations can, or should want, to afford these days. FEEDING the huddled masses if FAR more important than killing them.

"The marauders have simply seen the situation and taken advantage with the aid of a political class taking advantage of their own situation at the public trough"

.......... Indeed! Such is much of what I often lament. Perhaps I'm a bit naive due to living in our large wealthy but small population state in which politics is always near at hand... but I still have hopes of democratic process returning to some parity with the several decades old fealty to the false gods of "THE Market". I do appreciate the power of capitalism, (when not distorted by political favoritism) to deploy capital and scarce resources efficiently in the market areas where "a willing seller and willing buyer" can, fairly, seek the ever elusive "price equalibrium". But there are large sectors of our mixed economy in which that is not the case and a functioning democracy must decide on "guns or butter" and provide the overall societal tapestry upon which a (truly free and honest) capitalism is to compete.

The coming election should give us feedback on what one hopes is the death throes of the ALL FOR THE RICH agenda that is highly tolerant of a manipulated "capitalism".

NEH sums it up well! Ha! in far fewer words than myself:

" We just need to make the right decisions and act at the right time. Which scares the bejesus out of those who would like to see us trip up and fail. And are doing their utmost to try and trip us up...

As Pogo observed long ago, "We have met the enemy and he is us".

[Jack]

Has Robert Reich made a mistake?

Commentator Robert Reich says there's one way to keep Social Security financially solvent. And it doesn't involve cutting benefits or raising the retirement age.

Robert Reich (Robert Reich)

Commentator Robert Reich says one program gets an undeserved share of the blame for the deficit. And anyway, there's an easy fix.

ROBERT REICH: Social Security is not at all responsible for the federal deficit. Just the opposite. Until last year, Social Security took in more payroll taxes than it paid out in benefits. It invested the surpluses in Treasury bills -- in effect, lending them to the rest of the government.

But now Social Security has started to pay out more than it takes in. So to keep it going, it collects only what the rest of the government is obligated to pay it. This will keep it fully solvent for the next 26 years.

But why should there even be a problem 26 years from now? Back in 1983, Alan Greenspan's Social Security commission was supposed to have fixed the system far beyond then by gradually increasing payroll taxes and raising the retirement age.

The answer is Greenspan's commission failed to predict how much income would become concentrated at the top. Remember, the Social Security payroll tax applies only to earnings up to a certain ceiling that rises with inflation. That ceiling is now $106,800.

Back in 1983, the ceiling was set so the Social Security payroll tax would hit 90 percent of total income covered by Social Security. Today, though, the Social Security payroll tax hits only about 84 percent of total income.

It went from 90 percent to 84 percent because income inequality has widened. Now a much larger portion of total income goes to the top -- almost twice the share they got back then.

If we want to return to 90 percent, the ceiling on income subject to the Social Security tax would need to be raised to $180,000. Do that and Social Security's long-term problem is solved.

So there's no reason even to consider reducing Social Security benefits or raising the age of eligibility. The logical response is simply to raise the ceiling.

Not incidentally, several months ago the White House considered proposing that the ceiling be lifted to $180,000. Somehow, though, that proposal didn't make it into the president's budget.

......... Indeed, Reich explains well more more stats and detail what I've mentioned here before; that THE problem of SS is that ot the income that escaped to WELL over the $107,000 contribution cut off. So far we agree as seems logically irrefutable.

But the solution? Reich suggests raising the cutoff to $180,000. Is that right? That approach is to take another $10,000 out of the pay package of those earning $180,000; a considerable burden on what in many of our cities is hardly a king's ransom. In that income range, where it would be quite a bite, it may well be reason for inflationary "wage discussions" with those who'd likely have some "market power".

At the top 2% level where, by far, has disappeared most of our productivity gains of the last 25 years, the ten grand would hardly be noticed. Instead, it would seem better to raise the amount Reich is shooting for by a smaller percentage sliver extending all the way up. At the same time WERE we really interested in improving our economy and cutting average and lower income folk in on the impressive productivity gains of the last quarter century, we'd be wise to lower the percentage at those lower percentiles, if only that folks MIGHT have enough to pay for the oil price gouging and "go shopping".

What do you think? Could Reich be wrong for once?

[Pradeep Despandee]

Past American mistakes happened in a global environment where your freedom advantage compared to the rest of the world was truly enormous. So while those mistakes may have consumed a portion of the huge individual freedom endowment your country was fortunate to establish at its creation, you still maintained a considerable advantage in spite of all those mistakes you made along the way.

But these days -- as 3 billion people finally woke up from the hippie dream of prosperity through central planning, collective management of the economy and comfort in mediocrity, and essentially started mimicking the core American values of individual freedom -- this margin of advantage has narrowed considerably. Perhaps, more importantly, in a vicious cycle of apparent economic suicide, you seem to be blaming your very own culture of individual freedom for your current ills. What better demonstration of the vicious cycle of decline that brought down many one countries.

You have lived most of your lives at a time when 3 billion people lived under the hippie growth dreams of Mao Zedong, Mahatma Gandhi and their immediate successors. The world is no longer such a place. Reneging the core American values of self-reliance and self-determination -- for the very “we are all in this together” policies that we are on our way to abandoning -- hardly seems like a method that has any chance in succeeding, i.e., enabling you to keep the superior prosperity you have always taken for granted.

I mean, there seems to be a considerable portion of the American population, perhaps even a majority, who upholds Europe, of all places -- the sick man of the world -- as the beacon of what they would like to become. What better example of American voter moths inescapably heading towards the irresistible glow of the light?

Well, go ahead American people. Dig in your heels and redouble on your chance to prove me wrong in your next elections. “Make my day” as one of your famous actors says…I’ll be watching the drama unfold.

[Pradeep Despandee]

The fundamental reason why compensation for unique and extraordinarily innovative people has increased, is because the leverage an innovator has at improving the standard of living for the entire world has increased greatly. A new iPhone, to make an example, can immediately reach and benefit the standard of living of hundreds of millions people. So while the compensation of uniquely innovative people has increased, the amount they actually charge the consumer per unit product has decreased significantly, because of larger markets and, yes, that evil capitalist competition, that race to the bottom that will force Steve Jobs to reduce the amount he charges for his labor from $0.20 to $0.18 per iPhone in an attempt to compete with many thousand superiorly innovative people worldwide. Rather than demonize the global innovator -- whom capitalism itself constrains in charging an ever smaller amount per unit produced as compensation for luminary work – the American tradition that brought Americans prosperity would have you uphold such people as heroes. Apparently, no more.

Declaring war on Steve Jobs by resenting the fact that he charges $0.20 per iPhone for his superior innovative intuition, means that he will, sooner or later, be supplanted by D. Ling or M. Gupta or move to China, as he is increasingly doing with an ever larger proportion of his business operations. So will all the Steve Job’s be supplanted by some Chinese or Indian businessman or will all competent Americans be attracted to opportunities in the Developing World? Will all business operations move to China, India Brazil etc.? No, of course not. But even if 10% do, the situation for America will be worse than before. So how are you now going to respond to this new downgrade in productive capacity? Well, of course the same way as you did the first time, i.e. by a new round of additional class warfare on Steve Jobs and the like,… until there are no more Steve Jobs, or so few that you become a French style economy riding a 1-2% growth trendline to certain economic extinction -- drowned by a tide of world development rising at 4-5% annually, while you try to maintain prosperity and… at the same time aspiring to reduce CO2 emissions (another legendary joke of western suicide that I cannot help but mention).

Voters like Jack take everything that is distinctly American and attribute to it some supposed American misfortune. Misfortune of what? Of the fact that the average American enjoys a standard of living that is currently 6 times the world average? From a purely empirical, let’s say probabilistic point of view, what is the chance that he may be correct? That America, in spite of all its alleged aberrant and abundant dysfunctions, compared to the rest of the world, has somehow, magically managed to be the most prosperous country in the world? Jack’s recipe is: “Reject everything that sets America apart from the rest of the world, copy Europe, and you will prosper”. Increasingly, that also seems to be the destiny your current president seems to have had in mind all along. Is that the delusional hope the American majority has finally fallen for? Looking at it from the outside, it seems baffling. Baffling that a country as successful as America is on the verge of rejecting what once made her the most prosperous country on earth.

One of the main reasons why the American middle class is in the top 10% of world prosperity is because they’ve let those in the top 1% keep their earned money. Money that represents only a tiny fraction of the overall benefit they and the intelligent people that surround them bestowed on the world with their innovations. But, ultimately, if that is such a morally unacceptable deal why shouldn’t the lucky American middle class riding on the top 10% of worldwide wealth be forced to redistribute to the world 50% middle class of India? Socialism and social justice for thee but not for me?

So, alas, world equalization is coming through other means --- the very derided Capitalism -- and as the American middle class refuses to uphold the unique American values that propelled it to the top of world prosperity in the first place and tries to hang on to its privileged position by taking the moral shorcut of declaring war on Steve Jobs, fast convergence to the worldwide average will be the inevitable end result.

So, to use the common American expression, it’s all water under the bridge at this point. Americans will follow the destiny they have chosen. They seem to have finally gone past the tipping point and entered a vicious cycle that will invariably keep them in the irresistible embrace of decline.

[Donovan]

So many folks who are responsible for this situation are no longer on the game. Where is justice?!

[Jack]

Pradeep! Good to re-hear your "Jobs" rant this fine sunny Friday! BTW (and only if you know) are you a part of the Koch Bros empire? or a part of the many tentacled Heritage.org propaganda machine?

[oakley sunglass]

as if the life the time warm such winds through. What flow is the song, precipitates Cheng Rushi andante in the moral nature, all the various professions, section, warm like honey.