Small distant problems before big immediate ones

At least that is the elite political consensus on dealing with the fiscal balance sheet of the United States government. We saw in 2005 a party run itself off a political and electoral cliff campaigning against Social Security as a social insurance program. And this attempt to privatize and destroy it near the top of a bubble (amazing how that is always the case) was supported by a massive amount of elite media support. The Pain Caucus was alive and well; convinced that we could not afford as a society to guarantee our retirees roughly 32% (under current law and intermediate projections) to 40% (current law, low cost projections)replacement rate incomes. We had to destroy the system to resolve an anticipated problem in either fifteen years as the elite was seeking to renege on their promises from 1983 or thirty five years. Social Security was in trouble and non-sustainable in its current form for any length of time.

But never mind any of the other fiscal proposals that had/have larger ongoing projected costs than OASDI --- those are either critical penis enhancement projects where we must stay for 100 years to show resolve, or critical changes in the tax code that encourage dead people to be more productive.

Yet when we look at the evidence today, Social Security is not that big of a problem. Over the 75 year projection range, the Social Security Administration projects the entire program deficit to be 0.6% of GDP. In the grand scheme of things that will produce a large number but it is fundamentally a rounding error. Let us take a look at a couple of other major policy initiatives --

a) John McCain's tax proposals would result in a permanent loss of roughly net $400 billion dollars a year in revenue. That is slightly more than 3.0% GDP, or roughly five times the size of the projected long run Social Security deficit. Yet he is a 'credible' individual on economic policies.

b) The supplemental appropriation for Iraq this year was roughly $200 billion dollars this year. That is roughly 1.5% GDP

c) The economic stimulas package/bi-partisan ass covering rebate check plans this year is roughly $130 billion dollars or about 1% of GDP.

A and B are long run changes in revenue/expenditure slopes for the United States while C is a one-off policy change, but in the past year 'serious' new proposals for expenditures and revenue losses make up roughly 5.5% of GDP, or about 9 times the size of the long run deficit for OASDI. Just keep that in mind when told that Social Security is in trouble.

"Help, We're Being Repressed!"

By Cernig

The UK Sunday Herald's veteran political reporter Iain MacWhirter absolutely nails the hypocrisy inherent in the system - where bankers can demand state "socialist" welfare and no-one calls them on it.

COME BACK Karl Marx, all is forgiven. Just when everyone thought that the German philosopher's critique of capitalism had been buried with the Soviet Union, suddenly capitalism reverts to type. It has laid a colossal, global egg and plunged the world economy into precisely the kind of crisis he forecast.

The irony, though, is that this time it isn't the working classes who are demanding that the state should take over, but the banks. The capitalists are throwing themselves on the mercy of government, demanding subsidies and protection from the capitalist market - it's socialism for the banks. Hedge fund managers of the world unite, you have nothing to lose but your bonuses.

On Friday, the heads of the big five British banks demanded - and got - another £5 billion in "emergency liquidity" from the Bank of England to add to the £5bn they received earlier in the week. But like militant shop stewards they complained it wasn't enough. "Look how much the banks are getting in Europe and America," they whinged. Hundreds of billions of dollars and euros are being thrown at banks in an attempt to save them from themselves.

The quaint idea that loss-making companies should fail, to ensure the health and vitality of the capitalist system, has quietly been discarded. The banks, we are told, are "too big to fail", which means that they have to be taken into public ownership - like Northern Rock - or have their debts underwritten by government, like Bear Stearns, which comes to much the same thing. The central banks are also cutting interest rates to try to boost banking profits, and this is making currencies such as the dollar increasingly unstable.

Which takes us back to Marx. The crisis that is rocking the world is a classic example of the kind of shocks and dislocations that Marx said were an essential feature of a competitive capitalist economy.

...So what happens now? Or as Lenin said, What Is To Be Done? Well, not Communism for a start. Central control and outright state ownership along Soviet lines is no longer a viable political option - an undemocratic public monopoly is almost as bad as a private one. The fact that the banks are currently in league with western governments to create a kind of financial communism is doubly disturbing.

Instead of just propping up bankrupt banks, the governments should be democratising them - mobilising their assets to stimulate the productive economy, repairing infrastructure, researching and developing new markets, and refitting western economies to combat climate change. It needs a kind of green New Deal - an update on Roosevelt's imaginative policies of the 1930s fought tooth and nail by the banks.

They want unlimited access to public money to save themselves from the consequences of their own actions; welfare for the wealthy. This is above all a political, not an economic problem. There needs to be a political mobilisation of public opinion to force the banks and the government to bring the people into the equation.

MacWhirter laments the fact that in the UK the party that used to be the source of such calls, the Labour party, has been bought out by the banks. I can only agree. Unfortunately, here in the U.S., you've never really had such a party in the first place. And you're "supreme executive power" doesn't even have the excuse of some watery tart throwing a sword at him for his belief that he is King.

The land of the free.......

The New York Times has a story on the prison population of the United States. 1% of the country is served time behind bars and many more are relegated to third class status because of previous interactions with the criminal (and occassionally justice) system:

Nationwide, the prison population grew by 25,000 last year, bringing it to almost 1.6 million. Another 723,000 people are in local jails. The number of American adults is about 230 million, meaning that one in every 99.1 adults is behind bars.

Who is IOZ has a sobering take on this that is worthwhile to think about on a couple of levels.

I want you to consider, the next time you read some New York Times mouthpiece yammering about an "increasingly authoritarian Russia," or about the repressions of this or that state in the "Muslim world," that a person is more likely to be thrown in jail in the United States than in Saudi Arabia.

Past a certain point of near universal crime (rape, murder, robbery etc), crime and punishment are what societies make them to be. Fearful and insecure societies will have lots of both, while confident and strong buy-in/high social capital societies will have a bit less.

The United States as a whole is fearful and insecure and split along some standing fault lines of collar, race, class, and religious belief, fearful of an other. This fear has been exploited in one way or another to cement political power within this country since the Mathers ran Roger Williams out of Massachusetts and down into Rhode Island. This fear is what fuels the war on some drugs used by some people at some times instead of treating drug usage in the same manner as alcahol usage --- available to adults and the proscriptions are against behaviors fueled by that drug use that endangers others such as drunk driving instead of enjoying a couple of cold ones on your front porch on a warm June night. Fear of the other and fear of the cities containing the other fuel this binge of prison building. And it has been politically profitable for the relevant actors despite being an aggregate disaester.

Furthermore, it does not look like anyone has a strong incentive to change the basic structure of the criminal (justice) system on non-harmful crimes. We know America's prisons dual serve at great fiscal and treatment opportunity cost as back-up mental hospitals, we know that prisons are an amazing place for soft criminals to gain a graduate level education to become hardened criminals as there are few/no viable alternatives to employ their skill sets legitimately if they have a felony conviction, and we know that most prison costs are borne by state and local governments which will be facing a quadruple fiscal whammy in the next couple of years. There are viable diversion, and prison reduction programs that produce very low recidivism rates, very high human impacts, and do so at a third of the cost of a year in prison and yet these will not be funded. Instead prisons will continue to be built, guards hired, and state and local budgets stretched ever thinner as a nearly uncuttable cost continues to increase.

Pay, Productivity and Power

The basic, Econ 101 story of wages is that the value of the last chunk of work you do will be your basic compensation in an economically efficient industry. The slightly more complicated story is that since in most jobs, production value is fairly constant over relevant time horizons and the cost of identifying the marginal value is fairly high (how do you want to assign the value of the database conversion meeting I went to yesterday afternoon, or the training demonstration I'm doing this morning), compensation is roughly in line with average output over the long run.

Productivity is basically the ability of people to do stuff per unit of input. Business productivity is the ability to create value per staff hour along with the changes in procedures, technology and materials. The basic Econ 101 story on productivity is that as productivity increases, wages should move roughly in lock-step with productivity. Sometimes wages and total compensation will get ahead of productivity, sometimes it will lag, but both should self-correct over the intermediate term.

Dani Rodrik is pulling a very interesting graph from Frank Levy at MIT that indicates this is not the actual case. In it over the past generation, prime working age men are seeing a significant increase in productivity, but none of the educational groupings are seeing their compensation increase at the same or faster slope than the general business productivity increase trend.



Remember, this graph is talking about total compensation which includes employer contributions towards health insurance. We all know health insurance is increasing at rapid rates for all workers, and since this is for males age 35-44, the top of this cohort is starting to get expensive to insure. People are working harder, producing more, and even for graduate degreed individuals, staying even or falling behind in real cash wages.

The basic Econ 101 or 102 story is falling apart on the evidence here. There are a couple of basic explanations that could make some sense. The first is that the productivity statistics are overstated, so groups are on average making their marginal value and this compensation tracks well with changes in lowered productivity. The second explanation is a power imbalance as we know corporate profits as a proportion of the economy has increased to multi-generational highs in the past couple of years, and that unions have become ever weaker (there is good news on the slight 2007 increase in union density, but it is not a trend yet.)

The New York Times is looking at recent compensation trends and the combination of high inflation and a slowing economy is decimating real wages right now for the general population.



People in the prime of their working life are getting screwed and they know it. They are getting screwed in the short term and they are getting screwed in the long term.

The fight over isms - Updated

By Libby

Avedon sends us over to read Mad Kane this morning, who has an uncharacteristically serious post on sexism. She makes a good point that should certainly be considered when women respond to the inherent sexism that still permeates our society.

They are caught in a catch-22. If they react against these seemingly small slights, they appear to be overreacting or too sensitive. But to let them pass may signal that such comments are somehow acceptable.

It's a fine line indeed and Mad Kane provides the answer as to where to draw it, although she doesn't offer it as such. She points out the sexism in those remarks is subtle but goes on to posit that even such subtlety shouldn't be allowed to pass without protest. I adore MK and respect her opinion greatly, but I think she misses the negative consequences of making a big deal out of small and very subtle remarks. [See update]

Sure, we should continue to challenge sexisim. It still exists and in some ways it feels to me that it's gaining ground again. I think that's partly in response to what the average working Jake sees as an overreaction to every tiny slight and that's true not just for sexism, but also racism, ageism, homophobia and all the other discriminatory isms out there. It's seen as self-centered whining and unrealistic demands to be shielded from even the most minor offense. It's perceived as a quest to gain an advantage via nanny interference. It doesn't matter that they're wrong, the perception is what builds the backlash and impedes progress.

Which is not to say I don't think we should continue to point out the instances. We should. But we need to couch our complaints coolly, as MK did here. More particularly, within the context of the Democratic primaries I think both sides should step back from the ism rhetoric. This is not the forum for this fight. I continue to think any possible gains we could make in fighting discrimination will be negated by effectively delivering oppo to the GOP for the general.

Our long range goal is to get a Democrat into the White House. Whoever emerges as the victor in August, will certainly be better than the Republican and our candidate would best be delivered to the general without having been bloodied by their own side. Surely, we would be better served by attacking the GOP, rather than each other.

Update: Mad Kane checks into comments and notes that I misinterpreted her post. This I agree with completely.

In fact, here's how I end that essay: "Most women, myself included, overlook these subtle forms of sexism. I'm troubled by this, and I worry that by being silent, I'm giving up an opportunity to educate. For while some men use these tactics deliberately, others don't even know they're being offensive. Nevertheless, I usually smile discreetly and give a gracious nod. And wonder if I'm doing the right thing, or if I'm mistaking cowardice for discretion."

I wonder myself sometimes, especially as I watch the subtle sexism creep back into our discourse, whether I've become too complacent, resting on the laurels of the victories of the 60s. It's good to remember that the fight is ongoing. We've come a long way but we haven't won yet. Nonetheless, I don't think this primary race is a useful place to stage the battles.

Laughing about Kicks to the Groin

Now this is categorized as 'comedy' at YouTube and it is pretty funny for everyone who is not being kicked in the groin. However this momentary gain of pleasure for most people is being bought at the very high expense of a single person, the target of the kick. He is going to be in pain for the rest of the day, including a good half hour to an hour of intense pain.

Total social utility may have been increased by more people cracking a smile and chuckling than they otherwise would have, but there is a significant and concentrated cost that was required to improve social utility. I could very easily understand the motivations of the man who was kicked in the groin to opt out of future kicks and for him to be very unpersuaded by a maximal social utility argument as why he should continue to be kicked in the groin.

Dave at the Glittering Eye in a response to a recent Robert Reich editorial made a couple of interesting points concerning tradep, labor market mobility and growth patterns that prompted the kick in the groin image:

And I know that real wages are stagnating for many of us. I’ve seen it in my own family with lots of smart, well-educated, hard-working people struggling to stay in the middle class....

If Dr. Reich’s prescription is taxing away that income so it can be spent here rather than being invested elsewhere, is that really the best solution? That sounds like a “beggar thy neighbor” strategy to me, no?

And this

We also need stronger unions, especially in the local service sector that’s sheltered from global competition. Employees should be able to form a union without the current protracted certification process that gives employers too much opportunity to intimidate or coerce them. Workers should be able to decide whether to form a union with a simple majority vote.

sounds like a case for protectionism. If the only way that the American economy can prosper is protectionism, that doesn’t require stronger unions. That simply requires domestic hiring laws (particularly for companies that deal with the government) and erecting barriers to termination similar to those in Europe. Then we should expect some of the growth problems common in Europe, too.

There have been aggregate gains in the economy, and if we take GDP as a decent measure of aggregate utility, total and per capita real GDP has increased over the past thirty years. However as Dave recognizes in the first paragraph I quoted, the gains have not been evenly distributed and for most people staying in place is a more urgent priority than getting ahead in real terms.

If you believe (as I do) that trade should increase overall GDP, it will also produce proportional and absolute losers. Those losers have not been compensated for their losses and current policy regimes are lying most of the population up for another couple kicks to the groin. It is entirely rational to make significant attempts to avoid being kicked in the groin even if that action decreases social utility. Protectionism is a high cost game with significant long term costs, however if those costs are borne by the winners of the current multi-generational policy regime, why should the losers be too concerned. Yes, long run growth will be lower, but it is not like previous long run growth has been all that beneficial.

Dutch Woman Faces Murder-By-Abortion Charge

By Cernig

Is this insane or what?

A Dutch woman is being prosecuted for murdering her unborn child in an unprecedented case after she travelled to Spain for an abortion when she was already 27 weeks pregnant.

Today a judge rejected the 24-year-old woman's request for an injunction ordering an end to the Dutch murder probe, her lawyer Gerard Spong said.

Spong believes his client has done nothing wrong because Spain has a provision in its abortion legislation that allows late-term abortions, "if there is a psychological need for it," he said in a telephone interview.

"My view was and is that as long as Spanish judicial authorities do not make any decision that this woman has committed an offense ... the Dutch judicial authorities should abstain (from investigating)," he added.

Abortion is legal in the Netherlands up to the 24th week of pregnancy and it is extremely rare for Dutch authorities to file murder charges linked to such a procedure. The fact that the woman is being prosecuted for an abortion carried out overseas makes the case unprecedented.

I mean, wtf? I know the E-Christian crowd will be happy about this, but is this really the way the rest of us want to go?

Let Them Breathe Poison

By Cernig

The offhand phrase "let them eat cake" uttered by the King of France' mistress, Marie Antionette, when told the poor didn't have enough bread to eat has ever since been the touchstone of elitist contempt for the common people. But imagine how much worse the impact of her words might have been if she had suggested the homeless should just breathe poison.

Our tireless researcher Kat has flagged up some reports that suggest the Bush administration - in particular FEMA, did exactly that. CNN, on January 29th:

Rep. Nick Lampson, D-Texas, said Tuesday that Federal Emergency Management Agency tried to control the outcome of a scientific study on formaldehyde in trailers used to house victims of Hurricane Katrina.

"Someone from one of the agencies, the CDC, came to our committee and reported that he had information that indicated that good science wasn't followed when a decision was made to allow people to live in basically travel trailers that were not designed to be lived in," said Lampson, chairman of the Energy and Environment Subcommittee of the House Committee on Science and Technology.

In addition, the chairman of the House Homeland Security Committee -- Rep. Bennie G. Thompson, D-Mississippi -- cited medical experts who said prolonged exposure to high levels of formaldehyde can cause ailments ranging from respiratory irritation to cancer.

The committee recently obtained internal CDC e-mail which showed that "despite the efforts of CDC professionals to bring these health risks to the public's attention, those concerns were thwarted by CDC leadership for roughly eight months," Thompson said.

The Clarion-Ledger expanded upon the story the following day:

The House Committee on Science and Technology this week released e-mails from Christopher DeRosa, a CDC scientist analyzing test results on unoccupied trailers in 2006. The e-mails said FEMA repeatedly requested "we specify safe levels of exposure."

"We should be very cautious about the use of the word 'safe' in reference to formaldehyde," De Rosa wrote. "Since it is a carcinogen, it is a matter of science policy that there is no 'safe' level of exposure."

And Salon's Sheila Kaplin had even more:

In May 2006, FEMA asked ATSDR to compose a "health consultation" on the FEMA trailers. Dr. Christopher De Rosa, chief of toxicology for ATSDR, told FEMA that any report on health risks of exposure to formaldehyde would have to include information on the risk of cancer and other potential long-term problems. At that point, De Rosa was cut out of the loop. Internal ATSDR documents show that FEMA contacted two of De Rosa's staffers, who then prepared the misleading consultation. When, nine months later, De Rosa learned ATSDR had omitted the key health information in its advisory, he drafted a letter to FEMA trial attorney Patrick Edward Preston.

"I am concerned that this health consultation is incomplete and perhaps misleading," De Rosa wrote. "Formaldehyde is classified as 'reasonably anticipated to be a human carcinogen.' As such, there is no recognized 'safe level' of exposure. Thus, any level of exposure to formaldehyde may pose a cancer risk, regardless of duration. Failure to communicate this issue is possibly misleading, and a threat to public health."

De Rosa also wrote to [chief of the National Center for Environmental Health/Agency for Toxic Substances and Disease Registry, Dr. Howard] Frumkin, noting "FEMA's initial contact came directly to me nine months ago on this issue." "I reviewed the proposed statement and specified that they had neglected to address longer term risk including cancer." After eight months of tense negotiations, a revised report included references to the potentially harmful effects of formaldehyde. But other health information, including the likelihood of other toxic gases, such as toluene, being present, was omitted, as was De Rosa's insistence that ATSDR call for the government to take immediate action to end formaldehyde exposure to trailer residents and monitor them for long-term harmful effects. Records show that following his protests, De Rosa in October 2007 was "reassigned" out of his long-term post as director of ATSDR's divison of toxicology and environmental medicine. De Rosa was not available for comment.

Following on the back of repeated reports of Bush administration "fixing the science around the policy" on such matters as global warming, abstinence advocacy and stem cell research, this really is the most outrageous one of all. In this case, covering up the true science behind their policy put the lives of U.S. citizens who had already experienced enough tragedy at risk.

Is it too much to call this a crime against humanity? Maybe. But I'd hate to argue the moral distinctions between deliberately using poison gas on your own people and knowingly providing a means for your own people to breath poison fumes in front of even a first year philosophy class.

Fungibility, food stamps and second best choices

While discussing the counter-cyclical empircal nature of the disability and early retirement systems with Gary Farber a couple of months ago, he discussed the road blocaks that are in the way of successfully navigating SSI disability. One of those road blocks is a very high initial claim rejection rate followed by a lengthy and potentially expensive appeals process that overwhelmingly produces approval for claims. He posited that this is a feature, and not a bug of the system:

"It seems to me a system set up for failure."

It's the basic model for most American welfare/aid systems: the goal is to be dysfunctional and inadequate enough to keep out/drive out most of the people who need it, so as to bring/keep down costs and juke the stats,

Poorly designed, difficult to navigate and unpredictable are a common complaint of the American social safety net. Private charity providers have the right to turn anyone away, providers funded by local governments are pro-cyclical in that they have money when the need is below trend and are making cuts when needs are above trend, and the federal system has been under a sustained thirty year ideological and management assault.

Programs very seldom are designed in first best manners. They are political compromises and reflections of values and beliefs that do not hold operational effectiveness or efficiency as an ultimate objective. American social welfare policy has long been colored by the dichotomy of the 'deserving or undeserving poor'. The deserving poor within this framework are those who are poor due to non-moral failure of their own; the crippled, the elderly, the young, the infirm, the cyclically or short term structurally unemployed. The undeserving poor are those who 'choose' to be poor through a moral or practical personal failing and thus do not deserve aid.

I agree in a Policy 101 manner with Megan McCardle that the most economically efficient anti-poverty program is cash straight up. Cash is fungible, it is widely accepted at a predictable par value, and it can be spent on almost anything. As Mona at Unqualified Offerings noted, non-cash offerings that are restricted stores of value and exchange such as food stamps can not be universally used; " I was forbidden by law from trading any of that value for things I required much more, like blood pressure meds, or gas money." Yes, there is definately a black market that is accessible to those who have good social connections within this mileau that can transform a given value of food stamps into a lesser value of cash, but food stamps are restricted money substitutes.

But let's go back to the American obsession with the deserving and undeserving poor for a moment and see if there is any plausible political demogaugic point that could be used against a pure cash outlay to the poor. Why we only have to go back to 1996 and see the effective railings against AFDC and its cash payment system to what a majority of the American political universe saw as too many 'undeserving poor.' Ronald Reagan ran successfuly on 'welfare queens in Cadillacs' who supposedly took cash payments through fraud and misused them. Cash payments of any sort to the poor are very prone to political risk.

So we enter the universe of second best choices if the intent of a program is to alleviate some of the effects of poverty and deal with a constrained choice that has a chance to gather significant political support. There are two basic options; the first is similiar to the stimulas option that is going through the House right now, make any program that aids the poor overwhelmingly aid the middle class and median voter. The cash rebates that are being debated will not be targeted to cash, credit and liquidity constrained individuals where there would be actual stimulas, but towards the middle class, and they are coming out of income tax base amounts and not the FICA tax base amounts. This is popular, but extremely expensive with minimal effectiveness in achieving the desired policy end on the basis of dollars spent or foregone. The other option is to restrict the fungibility of a near cash grant and target those benefits to the people who need them. And thus we have the idea behind food stamps and Section 8 vouchers.

We live in a constrained world where Pareto efficiencies, Pareto improvements, explict program outcomes, effectiveness and efficiencies are not the ultimate values that guide our decision making. Yes, Policy 101 is a useful tool set of basic bullshit detection, but we live in a complicated world where first best alternatives seldom present itself as the restricting assumptions that we make in Policy 101 do not hold in reality. Second best choices are often the best choices that we can make.

Annuities and Systemic Risk

One of the greatest fears and risks in retirement is outliving one's income and savings so that at the age of 93 you are reduced to either depending on charity, giving up and dying, eating cat food or a combination of options. Social Security and other defined benefit pension/retirement plans are one of the guarantees against these outcomes as these plans are there at least until you die, and can often be bought up to include a spouse. Defined contribution retirement plans such as a 401(K) provide no such security, as sometimes the money will be there, and sometimes it may not be if the market tanks.

During the Social Security privatization debate one of the answers to this concern about people outliving their retirement savings was the pushing of private annuities. The basic plan would be that in the SUPER 401(K) money would grow until an individual neared retirement age. At that point, the individual would transfer their money into a private annuity contract that based on the interest rates of that day, the size of the transfer on that day and the age/health of the individual would give a guaranteed yearly lump sum payment to that individual. And here we come to the big issue of systemic risk or privatized accounts. Two virtually identical individuals who did everything they were supposed to do but chose to retire six months apart could face massively different retirement outcomes.

Let's break this down a little more on annuities. The simplest annuity is a perpetual annuity where the annual payment is equal to the principal times a fixed interest rate. There is no inflation protection over time, and the interest rate is usually fixed for a very long period as the annuity may have bought a 30 year US Treasury bill to fund the pay-out. Most annuities are single life annuities where the payout is equal to the principal times a variable interest rate times a factor based on the individual's remaining life expectancy at the time of the purchase. The goal of the annuity company is to have over a large enough risk pool a little bit left over in most accounts at the time that those account owners die. In both cases the individual is buying an end of life defined benefit pension plan with their defined benefit contributions.

So what impacts the annual payout of an annuity besides the age of the individual? The amount of principal put into the annuity and the interest rate of safe investments will impact the annual value of the annuity. And here is a major individual risk factor. If an individual was planning to retire in October, 2007 and pulled their money in September to roll it over into an annuity, they would be double-lucky as they would have pretty much top-ticked the market for the largest potential principal amount AND the interest rate they would have received on their principal would be decent. Now if someone is planning to retire in the next couple of months due to health concerns they are down 15% to 20% and the interest rate that they can receive for safe investments has dropped through the floor. Assuming that these individuals had the same privatized account balance on the day that the first individual rolled-over and out, the second individual is looking at an annual income stream that is 25% to 35% less over the course of his lifetime.

Why did this happen? The second individual bore the entire cost of the timing risk himself. The rational response for this individual is to stay in the labor market for as long as possible until they are made nearly whole again through increased capital contributions brings the account value up, the economy returns to trend growth in an indeterminate number of years and fewer expected years of life expectancy increases the annuity payout. This is a counter-cyclical incentive as a recession or downturn should encourage people to retire to clear out the market. And it is blatantly unfair.

Social Security and other defined benefit plans work on the premise that over the long term the US economy generally increases at a trend rate. However there are times when it decreases and there are times when it increases below trend. In these situations since only a small proportion of people covered by these plans are going to retire at any one time, the risk pool consisting of thousands or hundreds of millions of individuals can bear the timing risk much cheaper and easier than any single individual and borrow against future growth or draw down on past reserves to smooth things out. In this way two identical individuals who did everything right but retired six months apart won't face outcomes with massive differences.

America's gulag

By Libby

While George and Condi are roaming through the Mid-East, pounding the podiums with limp rhetoric about freedom, justice and democracy, the hard facts at home tell a different story.

For the U.S. as a whole, the number of people serving life without parole for offenses committed as minors is 2,225. According to an editorial in yesterday's LA Times (which is, I think, far surpassing its rival the NYT in terms of quality of opinion page content), not only have these kids received lifetime sentences for crimes they committed when they were under the age of 17, but they were also sentenced without the possibility of parole. Which means there is absolutely zero possibility that they will leave prison alive.

How many children are incarcerated for life in China or Russia or in any other repressive regime, you ask? " According to Human Rights Watch, there are only 7 people outside the United States who were sentenced to life in prison while minors." That's seven total in the entire rest of the world which I suppose shouldn't be so shocking when one considers our overall prison population is number one on the planet. We incarcerate more people for drug offenses alone than the whole of Western Europe does for all crimes combined.

As Bean points out, somewhere along the line we lost the concept that prison was supposed to rehabilitate and not just punish offenders, but hey, they have to keep the prison-industrial complex oiled somehow and so far, no one has figured out how to funnel our tax dollars into the system without also providing the warm bodies that overcrowd the prisons. [via]

SWAT outrage of the week

By Libby

As I often say, when we allowed the civil rights of drug consumers to be abridged because who cares about druggies anyway, it would come back to haunt us. The government won't stop there; they'll just keep pushing the envelope and here's a case on point. This one wasn't over drugs, it was about the refusal of medical care.

Nearly a dozen members of a police SWAT team in western Colorado punched a hole in the front door and invaded a family's home with guns drawn, demanding that an 11-year-old boy who had had an accidental fall accompany them to the hospital, on the order of Garfield County Magistrate Lain Leoniak.

The boy's parents and siblings were thrown to the floor at gunpoint and the parents were handcuffed in the weekend assault, and the boy's father told WND it was all because a paramedic was upset the family preferred to care for their son themselves.

The basic story here is the kid fell down and hit his head. He comes from a poor family living in a trailer park in Glenwood Springs, Colorado and is one of six of ten siblings still living at home with his parents. One suspects they can't afford health insurance.His father was a medic in Vietnam and opted to take the kid home instead of to the hospital.

Apparently a witness to the fall called an ambulance anyway, and the paramedics showed up at the house uninvited and were allowed to check the boy out. They found no evidence of traumatic damage but wanted to take the boy in to the hospital for testing. The father refused.

The next day social services showed up and examined the child. They took no action at the time. Now two days later...

[F]ollowing an afternoon shopping trip to town, the family settled in for the evening, only to be shocked with the SWAT team attack.

The sheriff said the decision to use SWAT team force was justified because the father was a "self-proclaimed constitutionalist" and had made threats and "comments" over the years.

However, the sheriff declined to provide a single instance of the father's illegal behavior. "I can't tell you specifically," he said.

"He was refusing to provide medical care," the sheriff said.

Now to begin with, the estimated population of Glenwood Springs in July 2006 was 8765. Why the hell does a town of that size even need a SWAT team? They don't and if not for the forfeiture laws, they wouldn't have been able to afford one.

In the second place, the father made a decision that all too many uninsured families are forced to make. He had to balance the medical need against the financial debt he would incur by playing it safe. He was within his rights to make that decision on the side of being able to feed his family instead of paying huge hospital bills. Finally, Radley has an update and "as it turns out, the kid was fine. After the raid, a doctor examined him, and told him to drink some fluids and take a Tylenol." So the father made the right call.

Which leaves us to ponder justifying the raid because the the father is a "self-proclaimed constitutionalist." I take that to mean that the dad values his privacy and doesn't want the government sticking its nose into his business. One guesses he doesn't like cops and the cops don't like him. But whatever the particulars are in this case, it should be a matter of great concern to all of us when our government can forcibly enter our homes and enforce their own judgements on what should be entirely private decisions. Isn't that the definition of a police state?

[h/t Peter]

Bond Ratings, Healthcare, and Social Security

Forbes.com is reporting that the Moody's rating agency is having concerns about the long term viability of the US government maintaining its AAA rating:

The US' ratings might be pressured in the very long term if medicare and social security reforms are not carried out, Moody's (nyse: MCO - news - people ) Investors Service cautioned, adding that subprime risks do not affect the government's rating.

'In the very long term... these two programs are the largest threats to the long-term financial health of the US and to the government's 'Aaa' rating,' said Moody's vice president Steven Hess (nyse: HES - news - people ).

This is an unfair statement. Over the long run, Medicare/health care in general AND ANYTHING ELSE is a fiscal problem/train wreck depending on your mood when you write about Medicare. Medicare/healthcare in general is its own massive problem. Grabbing a chart from Ezra Klein shows the different growth rates of entitlement spending projections:



Social Security in the intermediate case projections will grow by about 2% of GDP to 2075. President Bush's tax cut was roughly 1.3% of GDP, and President Reagan's tax cuts were roughly 1.9% GDP. 2.0% of GDP on a budget that is roughly 20% of GDP in long term trends is a marginal difference, especially if one believes that the productivity and immigration assumptions in the intermediate case are too pessimistic and that reality on those two fronts are closer to the low cost case. Social Security is a fairly inexpensive problem to fix if it needs to be fixed at all.

Now Medicare is a problem due to a combination of general health cost inflation AND demographics. Medicare by program design is targetted towards the high cost class of people (old people), and we are going to get more old people. But general healthcare costs society wide are increasing rapidly too.

Conflating medical/health expenditures and Social Security expenditures and then proclaiming a combined crisis is absurd and alarmist.

Teenage sex, lies and statistics

By Libby

After six years of policy based on religious beliefs, the fruits of 'faith-based' sex ed are ripening. The latest statistics show teenage births rose 3% last year. The obvious conclusion is that abstinence-only sex ed is the culprit yet the abstinence-only nannies are claiming this is proof that teaching about safe sex is to blame, apparently because they haven't managed to completely wipe out the fact-based programs yet.

Oddly, "a biannual government survey of high school students found that the percentage of those who said they used a condom the last time they had sex rose to 63 percent in 2005, up from 46 percent in 1991." There's that self-reporting thing again. Considering "sexually transmitted disease rates have been rising, including syphilis, gonorrhea and chlamydia." one might think those kids are, shall we say, stretching the truth?

This isn't rocket science. Teenagers are going to have sex. They always have and they always will. Why we allow our federal government to spend $176 million annually on abstinence-only education is the only mystery here.

When peace becomes a dirty word...

I've been meaning to get to this story that I picked up at Crooks and Liars a while ago. It's rather horrifying.

Students at Cocoa Beach Jr./Sr. High School are waging a war on peace.Recently, sophomore Skylar Stains decided to hold Peace Shirt Thursdays at the school. Skylar and her friend, Lauren Lorraine, started wearing peace shirts and soon recruited more friends to wear them. Now, the “Peace Shirt Coalition” as they call themselves, has close to 30 students from all grades.

Students started approaching the group members, yelling obscene things at them, said Lauren.

And then it got worse. The posters they left on their lockers were being torn down or being defaced with swastikas and ‘white power’ slogans. Then ‘I Love Bush’ and ‘I Love America, Because America Loves War’ were taped over them. But even that wasn't the end of it.

Soon, a second group started to wear Confederate flag shirts to oppose the peace group, Skylar said. She saw shirts with sayings such as “This is America, get used to it,” and “If peace is the answer; it must be a stupid question.”

“Now there are even ’support our troops’ kids who don’t like us because I guess they think you can’t say peace and support the troops at the same time,” Lauren said.

The school responded by punishing the peace kids for causing trouble and denied them the right to have a peace club even though they submitted a written proposal and had a sponsor as required. Now all they have left is a My Space page where their detractors continue to leave threatening comments.

These kids weren't trying to make any kind of political statement other than supporting the concept of peace so what would cause such a violent reaction to their little club? I hear David Gregory blames blogs for creating such a polarizing public environment, but I doubt the student body of this little school is spending its waking hours poring over either Kos or Power Line. No, there's a simpler explanation.

The GOP spent years accruing power by planting hate in their base via their wedge politics. This sort of ugliness is simply the fruit of that poison tree.

Update: From racrecir in comments, more kids who hate peace because they've heard it has 'a liberal bias.' How sad.

Taking food out of the mouths of hungry children

By Libby

Under the heading, robbing the poor to pay the rich, this heartless policy has to be one of most counterproductive scams in the history of legalized, governmental highway robbery.

The collection of child support from absent fathers is failing to help many of the poorest families, in part because the government uses fathers’ payments largely to recoup welfare costs rather than passing on the money to mothers and children.

Close to half the states pass along none of collected child support to families on welfare, while most others pay only $50 a month to a custodial parent, usually the mother, even though the father may be paying hundreds of dollars each month.

The whole notion of enhancing child support collections was sold on the premise that it would help keep mothers off welfare. Instead it's just one more underhanded trick to punish women for procreating while poor, while enriching the government's payola funds. It seems to me that every time the government has 'reformed' the welfare system, they have only made it more impossible for single mothers to escape poverty.

The false 'humanity' of the anti-choicers

By Libby

I decided this post was too cranky and don't want it to reflect on my partners here, so I moved it to my own blog.

Oh so extravagent....

Andrew Sullivan does not like Social Security, but that does not give him the right to be uninfomred in arguing for its demise today:

Not a total guarantee that the gold-plated benefits of the late-century will keep growing and growing. And not a peg to wages rather than prices, linking retirees to current wage-earners rather than actual needs. I agree with Amy that the obvious, simplest reform to keep social security solvent is to remove the peg to wages, and keep it indexed solely to price inflation.

Via the 2003 CBO report, the following chart shows projected replacement rates of the first year of retirement income for different ages of retirement over the next seventy years or so. Remember that the three different age levels and their different respective rates aim to provide the same acturial earning levels [get more if you start collecting later/older; get less if you retire/collect early].

Ooohhh --- 40% wage replacement is now 'gold plated.' Yes, the replacement rate for very poor individuals is signifcantly above this; up to 90% for people whose AIME is less than $8,600/year but it is not just to harm the worst off in order to balance a budget. The American who has a lifetime of earning exactly the wage index amount, who retires today at normal retirement age, will see a 44% replacement rate. That number will decrease in the future according to the current schedule.

Kevin Drum notes the size of the benefit under current law and under the proposed law that Andrew Sullivan supports because Sullivan believe's today's benefit is extravagant:

That's $881 per month. There are lots of things you can call that, but "gold plated" isn't one of them.

Oh, and one other thing. The average benefit in 1960 was $981. If benefits had increased since then only at the rate of price inflation, today's benefit would be $6,680. Subtract the Medicare premium and divide by 12 and the monthly benefit works out to $435.

On a personal note, my parents' retirements are in decent shape because my dad has a union pension in a very well funded union controlled pension trust that is legally segregated from any single company's ability to pillage it, so Social Security is not the only thing standing in the way of my parents moving in with me or any of my siblings due to destitution in their old(er) age. However not everyone is so lucky, and having a reliable, fully transportable, non-exposed to systemic risk defined benefit pension that replaces between 33% to ~40% of pre-retirement income is not 'gold plated.'

There is a place for retirement income that is held at some degree of investment risk, at some degree of systemic risk, and at some degree of potential information asymetry risk, but that level of income is, or at least should be, past the basic levels needed to feed, clothe and shelter oneself.

Obama on medical marijuana

By Libby

I would have prefered a stronger endorsement but Obama is on the right track with this statement.

"My attitude is if the science and the doctors suggest that the best palliative care and the way to relieve pain and suffering is medical marijuana then that's something I'm open to because there's no difference between that and morphine when it comes to just giving people relief from pain,” Obama said. “But I want to do it under strict guidelines. I want it prescribed in the same way that other painkillers or palliative drugs are prescribed.”

Unfortunately, he then adopts the classic prohibitionist argument and goes on to caution against the 'slippery slope' of using medical marijuana to normalize recreational marijuana use, which is really what we need to do in order to successfully address the problem of drug abuse.

We've got a long way to go, but it's a sign of how far the drug policy movement has come that a major frontrunner is willing to address the issue positively, not to mention the admission of having inhaled himself. In 04, nobody but Kucinich would touch the issue publicly. Maybe by 2012 we'll get high profile candidates willing to admit that responsible recreational use isn't all that threatening either.

Richly twisted logic

By Libby

The Washington Times looks at some stats and concludes that the Democrats are the 'party of the rich' based on the fact that they represent districts that are financially well off while the GOP tends to get elected in poorer districts. While they correctly note that the Democrats are struggling with reforming the tax rate on hedge fund managers, the basic premise demands a huge leap of logic.

They carefully avoid noting the personal worth of the legislators. There aren't many paupers inside the Beltway. That the Democratic districts are doing better than the median would suggest that Democrats are better at enacting social programs on the local and state level that keep their constituents out of poverty, while the GOP enacts multiple tax cuts for the filthy rich balanced on the backs of the poor in their own districts. In other words Democrats share while the GOP just doesn't care.

I don't really see how that's anything to brag about.