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What's really wrong with America
#1
Please excuse the pedantry, if any, but there's a simple economic relation can explain a lot of what's wrong with the country right now. Savings = investment; S = I. We talk a lot about the savings baby boomers have invested in Social Security for future years. The program buys up government bonds as a form of savings, and it has enough of those to live off of those until 2020 (?) or so. But are those bonds 'real' money, or simply accounting magic for the government to keep its debt off the public markets?

To say that the money is not real money is to say that those savings will evaporate due to inflation. To take the opposite view would be to say that they are actually investing in something meaningful. If there are no investments, then those savings are illusitory. What we are seeing now, IMO, is the bad scenario. Our national infrastructure gets a failing grade; corporations won't make long-term investments either. What should be happening now as the baby boomers get ready to retire is that they should be looking ahead to problems the country might face after they're gone, and applying their managerial skills, which will get scarcer over time as the workforce gets younger. The younger generation will be left with a decaying infrastructure and be undermanned to manage it.

As for why people can't make these investments - there is so much blame to go around, it's almost useless to apportion it. Social entitlement programs are clearly not investments, so they eat away the savings. But getting rid of the programs altogether would be shooting ourselves in the foot, because it doesn't address the underlying investment problem. I really have yet to see any political program towards long-term investment, with the possible exception of TARP. (That program got a lot of criticism for its stimulatory nature, or lack thereof, but that criticism misses the point that infrastructure spending was sorely needed in the first place, recession or not.) In my mind, I don't really hold the private sector responsible for not making super long-term investments, because I don't really expect them to do so in the first place. I think that's the role of the government. Others may disagree. In any case, the squabbling over whose responsibility it is misses a much larger point.

I think it is always worth questioning to what extent America's exceptional qualities have to do with past investments, rather than future potential.
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#2
David, I believe you are biting off more than can be chewed here in one thread, because you throw out more than one or two varying points.

To begin, I assume you are only discussing what is wrong with us "economically", and pointedly using the subject of 'investments'.

But I'll cover just two aspects.

One, the Social Security program really was a form of 'investment' UNTIL the politicians(mostly Democrats, started raiding the SS Trust Fund, and using it to pay the annual bills, in order to support their ever increasing spending. Hey, they had to take it from the most convenient, and lease accountable, place in DC, right? So, now there really isn't any trust fun, other than IOUs, which will not buy anything any longer, if ever.

Secondly, TARP was never primarily about 'investments'. It was mostly used as payoff to Democrat supporters(think AFL-CIO, and others). Oh, and by the way, let's also include other areas which need investment. But that was just an 'aside', and an excuse to use the title. Both parties are great at half-lies, but the Democrats have taken it to a new art form.

Surely you can see all this David? It's like a partially clothed woman, standing right in front of you. And Obama is the most responsible for doing this.
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“Socialism always begins with a universal vision for the brotherhood of man and ends with people having to eat their own pets.”
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#3
JL Wrote:the Social Security program really was a form of 'investment' UNTIL the politicians(mostly Democrats, started raiding the SS Trust Fund, and using it to pay the annual bills, in order to support their ever increasing spending.
Yes but their main spending increase was Social Security, especialy if you look at Obama's administration.
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#4
(08-06-2011, 01:55 PM)John L Wrote: One, the Social Security program really was a form of 'investment' UNTIL the politicians(mostly Democrats, started raiding the SS Trust Fund, and using it to pay the annual bills, in order to support their ever increasing spending.

I'm not sure if I've gotten my point accross. "Spending" is not the problem. These savings, on a fundamental level, don't even exist if they're not "spent" on investment. Investment always starts with some spending, and it then aims to recoup the money later - and in this case, we're talking about decades later. Clearly, some forms of spending are better investments than others - and I won't vouch for every spending opportunity used by the Democrats - but if you're against "spending" SS savings altogether, then you're throwing the baby out with the bathwater.
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#5
This is the problem with public sector vs public sector. With public sector, it can be pretty much what you want it to be, as long as you don't leave the money sitting around. "Invest" it in other things, such as the war in Vietnam, welfare payments, etc.

Only in the private sector is one expected to reap dividends on one's investment.

Can you think of any other reasons why the private sector can do it better? And if SS had been used within the private sector, just think of the dividends the recipients would be garnering?
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“Socialism always begins with a universal vision for the brotherhood of man and ends with people having to eat their own pets.”
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#6
bd5 Wrote:are those bonds 'real' money, or simply accounting magic for the government to keep its debt off the public markets?
Those bonds are real money. They were until very recently considered almost as cash or cash equivalent, meaning that they could be sold at any time in any quantity with zero risk of losing money. Now, with the recent downgrade it's a little bit less a cash equivalent, but still is.
The bonds held in trust fund for the social security are counted as debt by the gov' just as any other debts, like debts to China for example. When we talk of $14.2 T of gov' debt it does include the debt held by social security and other gov' or semi-gov' agency funds.
It's not off the public market since these funds buy and sell on the public market just as anyone else, or almost.

This is the debt the gov' owes to itself, in fact it owes it to those who will be entitled to get social security and healthcare in the future.

[Image: who%20owns%20debt.png]

bd5 Wrote:To say that the money is not real money is to say that those savings will evaporate due to inflation. To take the opposite view would be to say that they are actually investing in something meaningful.
It's meaningful investment since it still beats inflation by a small margin. But this margin is now very small because so many poeple wanted the safe US Treasuries that their price rose, and the interrest decrease as the price rises. The more poeple want to buy Treasuries, the smaller the interest yield. Today it's the #1 placement after gold. Gold rose by 15~20% a year in the last 10 years, T-bonds give 3%. Gold gains are not garanteed as it can fall as well as it can rise, T bonds and notes are garanteed practicaly 100%.

bd5 Wrote:The younger generation will be left with a decaying infrastructure and be undermanned to manage it.
Why do you think so?

Education is the problem. Like healthcare it's too expansive and that jeopardize the future of the skilled worker base. There is a need for public schooling. Tuitions to private colleges are ineffective because too expansive to taxpayers.

But there is no reason why we couldn't solve this problem less now than before.

bd5 Wrote:I don't really hold the private sector responsible for not making super long-term investments, because I don't really expect them to do so in the first place. I think that's the role of the government.
You are right: Large infrastructure project and maintenance of existing ones require large governement intervention. Some here hate the idea of large gov', but there is no other way to do it.
There are long term investments which benefit are enjoyed over several generations.

db5 Wrote:I think it is always worth questioning to what extent America's exceptional qualities have to do with past investments, rather than future potential.
IMO there is a sens of passeism in the US (sleeping on past achievements) especialy in the field transportations.
That's the danger of a country like the US with already very impressive, monumental constructions. Poeple dn't feel the need to build more of them, not as much as where there is nothing. It's a very dangerous feeling because existing structure are slowly decaying while the poeple don't notice it. You get to have a budget for maintenance. And if you build nothing new, other nations will surpass you, also without you noticing.

IMO future involvement in big projects are more important than enjoying past efforts. But enjoying these past investments should be an incentive, not a discouragement for doing more.

JL Wrote:One, the Social Security program really was a form of 'investment' UNTIL the politicians(mostly Democrats, started raiding the SS Trust Fund, and using it to pay the annual bills, in order to support their ever increasing spending.
Yes as the age pyramid inverses itself, the gov' is spending more and more in senior care, and when the financial world implodes and millions lose their jobs, more is spend on SS, depleting the funds faster than expected.
Today one in 5 american adults is supported by the work of the others (in europe it's almost one in 4) and in 10 or 20 years it will be (in the US) one in 3.
Of course the geniuses who planned retirement programs always assumed the ratio will stay the same! (althought it's impossible.)

Democrats, started raiding the SS Trust Fund, and using it to pay the annual bills, in order to support their ever increasing spending ... on social security.

JL Wrote:And if SS had been used within the private sector, just think of the dividends the recipients would be garnering?
Like dividends on GM shares?
Wasn't the pension funds who owned packs of GM that lost 1/3 of their value when GM went bankrupt?

I don't know what you mean by dividend, because once the market crashes... you know... you wished you were in Treasuries...

JL Wrote:This is the problem with public sector vs public sector. With public sector, it can be pretty much what you want it to be, as long as you don't leave the money sitting around. "Invest" it in other things, such as the war in Vietnam, welfare payments, etc
It depends on how intelligent public money managers are and it's notorious that their performance is horrible. But had been the performance of big private banks any better?
That's the problem with the private economy: they are as impotent at managing money as the public sector.

Yet their goal are different. The private sector should make the economy working, your and my business, create jobs directly. The public sector should build an infrastructure and assure en environement where the economy finds it easier to prosper. At least easier than in places where nothing is done.
Building a bridge with public money is an investment that no private company will do but that will help the entire economy in the cities connected by that bridge.
If a private company had to build such a bridge and then put a toll as high as to make it profitable within 5 years, you would have to pay $30 everytime you cross that bridge. With the gov't investment assisted by a private management, you pay only $5, and the bridge is profitable after 30 years, which means that repairs after 30 years of use are also recouped within the next years.

This is true with everything big civilisations have built.

Of course war do the oposite: it destroys.
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#7
(08-07-2011, 08:50 AM)Fredledingue Wrote: The bonds held in trust fund for the social security are counted as debt by the gov' just as any other debts, like debts to China for example. ...This is the debt the gov' owes to itself, in fact it owes it to those who will be entitled to get social security and healthcare in the future.
Sure, there's a legal entitlement, but the question is weather it will be paid through tax increases or economic growth. If it's paid through tax increases, then it's nothing more than a legal comittment saying the government will raise tax rates in a few years. Congress could make that rule on itself - it wouldn't mean that any actual economic activity was happening. Moreover, I wouldn't really call a commitment to raise taxes in the future "savings."

Quote:
bd5 Wrote:The younger generation will be left with a decaying infrastructure and be undermanned to manage it.
Why do you think so?
Simply because there are fewer of them, and they have less managerial skill than the older workers. They have their niche, and diverting them away to these projects will cause other problems.

Quote:Education is the problem. Like healthcare it's too expansive and that jeopardize the future of the skilled worker base. There is a need for public schooling. Tuitions to private colleges are ineffective because too expansive to taxpayers.

But there is no reason why we couldn't solve this problem less now than before.
Education is an investment. (I'm using the term broadly.)

There is also a very good reason why we should be more able to solve the problem than before (and particularly than later) - these government agencies are forced by law to buy government bonds, which would be able to fund it. It's an opportunity cost.

Quote:IMO there is a sens of passeism in the US (sleeping on past achievements) especialy in the field transportations.
That's the danger of a country like the US with already very impressive, monumental constructions. Poeple dn't feel the need to build more of them, not as much as where there is nothing. It's a very dangerous feeling because existing structure are slowly decaying while the poeple don't notice it. You get to have a budget for maintenance. And if you build nothing new, other nations will surpass you, also without you noticing.
Bingo! I will also add that the silent nature of the problem is what is most insideous.

More reading.
Stephan Walt Wrote:Similarly, it's easy to find short-term signs of American primacy that may be masking adverse long-term trends. Optimists can point to U.S. military predominance and the fact that the American economy is still the world's largest, or to the number of patents and Nobel Prizes that U.S. scientists continue to win. But just as the British Empire reached its greatest territorial expanse after World War I (when its actual power was decidedly on the wane), these positive features may be largely a product of past investments (and good fortune) and focusing on them could lead us to miss the eroding foundations of American power.

JL Wrote:Only in the private sector is one expected to reap dividends on one's investment.

Can you think of any other reasons why the private sector can do it better? And if SS had been used within the private sector, just think of the dividends the recipients would be garnering?
I assume the underlined part should read "public".

Just to reinforce what Fred said above - the private sector does not always handle their money that well. I'll add to that that one of the main reasons is their short-term investment horizon (in fact, what we might think of as handling their money well has different goals than we do.) Can you think of any 30-year investments the private sector does? Mortgages aren't meant to be owned for more than a couple years, before refinancing. Student loans need subsidies - and education is one of the most important sorts of investments for a country.

I also find it sort of pathetic that we can't build a bridge anymore without squabbling about who gets the payoffs, in the face of massive underinvestment in general.
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#8
b5d Wrote:Savings = investment; S = I. We talk a lot about the savings baby boomers have invested in Social Security for future years.

You have obviously raised a complex and arguable topics here, and I will address only this one.

I know that economics text books postulate "S = I" in simplistic models, and I have read several of them. However that seems to be an illusion in actual practice. Investment (I) connotes the use of money to promote current or future economic growth. Quite clearly, savings put in government bonds, or savings currently built up by companies today which are not being plowed back into the business or new businesses are unproductive, as is quite obvious from the stagnation of our current economy.

Thus, one cannot really "invest" in social security (bonds), even though the inaccurate idiomatic speak would name it so.

Economists need to distinguish between those "investments" which lead to future economic expansion and those "investments" or "savings" (government bonds, etc.) which represent economic stagnation.
Jefferson: I place economy among the first and important virtues, and public debt as the greatest of dangers. To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our choice between economy and liberty, or profusion and servitude. If we can prevent the government from wasting the labors of the people under the pretense of caring for them, they will be happy.
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#9
(08-07-2011, 03:54 PM)b5d Wrote:
JL Wrote:Only in the private sector is one expected to reap dividends on one's investment.

Can you think of any other reasons why the private sector can do it better? And if SS had been used within the private sector, just think of the dividends the recipients would be garnering?
I assume the underlined part should read "public".


Absolutely not. The private sector can almost always do things better than the public one. Dividends on investment is just one of many. I asked if you you can think of any other reasons why it can.
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#10
Because private sector usually wants to do things as efficiently as possible so as to maximize profits. The government could care less about profits (and thus efficiency), since they can always get more money by taxation, or deficit spending.
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#11
So, if I'm reading this right, this whole issue of underinvestment comes from a dispute about who should be doing the investment. Conservatives are not willing to make any investments unless its their way. They're not willing to maintain social security as a public sector institution, in order to protest it not being a private sector institution. Am I reading the situation right?
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#12
Not exactly. They are saying that social security, as run by the government, is completely unsustainable. It is a Ponzi scheme. It doesn't matter whether it is run by the government or the private sector. As run now, it is going to fail. They also say that if people had control of their own investments for retirement, they couldn't do a worse job than the government is doing now. Better, probably, since they have a vested interest in their retirement, and the government simply wants a vote in return for giving the elderly a check each month, in essence buying their vote.
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#13
You're just reiterating the fact that conservatives would prefer for individuals to manage their own retirement accounts. Fine, but given that the system doesn't work that way, are they willing to do what it takes to make the system sustainable?
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#14
I don't think it matters in the least. The entire federal system of doing business, including social security, is caving in. When it implodes, the only alternative for most people will be ceasing to depend on the federal government and planning for their own retirement. Those who cannot do that (for whatever reason) will be well and truly screwed. Too bad, but they chose to put their faith in the feds.
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#15
There are trillions of dollars in play here. It will be another decade before anyone even has to withdraw funds. Even assuming low rates of return, that much money for that period of time adds up to billions and billions of dollars - possilby even low trillions. Real long-term interest rates are low positive, even negative - and it's the compounding interest that kills most long-term projects. The 'margins' (tax rates) are 20%-35%. Companies in most industries would kill for those sorts of conditions. It's a lot to simply write off without even making any effort (and by the way, I'll be happy to work for you as a fund manager.)

More importantly, SS is just a microcosm of a lot of other things going on here. We don't have a revenue model for private sector development of roads, so are we just going to stop building roads until the libertarian utopia arrives?
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#16
The United States is 14 trillion dollars in debt. There is no social security money.
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#17
bd5 Wrote:but the question is weather it will be paid through tax increases or economic growth.
Neither the former nor the latter: It's paid with borrowed money. That's the problem.

I'll read replies and comment more later tomorrow.
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#18
This debt is exactly why the government needs to invest.

Consider: you have money coming in, and you pay for the withdrawals with more money that you will eventually owe people. That's a Ponzi scheme. Now consider that instead of sitting on the money, you invest it. Now, suddenly, it's not a Ponzi scheme anymore, it's a legitimate investment. So the problem isn't the debt, it's how you use it and why you have it. Are you getting a loan for that new car because you just can't wait to have it, or because it will actually pay for itself by driving you to work?

I think I'm talking to myself now.
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#19
Yes. Because you are wrong. You are so right, you're wrong.


Quote:Are you getting a loan for that new car because you just can't wait to have it

This is exactly what the government has been doing for decades. They have been borrowing money to "buy" things that they had no business being involved in (such as the retirement of the elderly).
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#20
(08-09-2011, 10:34 PM)Huh...What? Wrote: Yes. Because you are wrong. You are so right, you're wrong.

Is this how Austrian economics works now? S2
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