Draft comment Open Left

That is me, I would like to throw in a little something I put up at Angry Bear the other day.

The topic was the empirical data of the effect of tax rates on economic growth. Fellow Bear cactus, who has a book on this coming out soon, has showed conclusively that even adjusting for lag effects that economic growth has been higher under Democratic presidencies with higher tax policies than under Republican presidencies with lower tax policies. Which shows that the Supply Side claim that higher taxes discourage work and investment does not have an empiric basis.

Which of course caused a commenter to rather smugly point to the Wiki article on 'Correlation does not imply causation'. Well true enough, but the relation is not symmetrical. Hume pointed out a few hundred years ago that no amount of positive observations of B following A logically proved that A causes B. It may in fact result in a psychological certainty that the Sun will really will rise in the East tomorrow which makes it perfectly rational to act as it it were a certainty. Which doesn't make it one from a strictly logical position.

Now Popper came at this from a different direction. If someone is making the positive claim that A causes B then even a single negative observation casts doubt on the relation. This he called 'Falsification' and used as the demarcation between Science and Pseudo-Science.

Supply Side economics and the broader Classical Liberal Economics from which it brings has relied on claims of logical certainty, they predicted certain specfic effects that didn't happen. Which causes them to adjust the THEORY to account for the differing outcome and leave the practice whether this be deregulation or tax cuts alone.. The Left generally is not immune from this impulse, certainly Vulgar Marxism has had no difficulty swallowing outcomes that are contradictory to predictions and so staying the course.

FDR struck a new course and so established a new kind of Liberalism that was not as theory bound as the Classical Liberalism that spawned both Chicago style liberal economics and Marxism, the New Deal did not insist that was either a magical Invisible Hand that would fix everything, or that we should institute rigid and very visible Five Year Plans whose failures would be explained away by 'Wreckers' who could then be sent to the gulags.

So I think it is fair to describe New Deal Liberalism as Enlightenment Liberalism, its practitioners have confidence in its methods which are empirical and outcome based without welding themselves to some big-C Certainty.

Now it is always psychologically more comfortable to cling to Certainty and never more so than in a time of serious economic and social flux, it is not easy being the anti-proverbial atheist in a fox hole. But Popperian style Empricism forces us to accept that we live in a probabalistic world, excorciating the Leader for not being true to the Faith or the Faithful for not being true to the Leader is ultimately counterproductive.

Mankiw, height taxes, and wilful blindness to history

Comment on "Redistribution, height taxes and utilitarianism" at Economists View

Mankiw is committing the common mistake of classical economists, they simply ignore actual economic history and the differing motivations behind the progressive agenda.

Some parts of that agenda are driven by utilitarianism. For example I would put universal single payer in that category. As a democratic people we have decided some goods should be delivered by public means. This includes such things as schools, most roads, fire protection, libraries. More controversially in the 60's we added such things as basic nutrition, income and medical coverage for the poor. None of this was inevitable, in colonial days all of those services were delivered in large part or in whole via the private sector either on a profit, subscription or charity basis. The extension of this to universal health care may to some be driven by morality, to others by ideology, but in a democratic society the real driver is utilitarian considerations.

Progressive taxation has much more mixed roots. Certainly it is partially utilitarian in impulse, once we have decided that things like libraries are public goods we have to acknowledge that not all people who utilize them can afford to pay a pro rata share, or else we could have just left them on the existing subscription system. The inevitable result is that there will end up being some downwards subsidy. The solution devised was to fund most of these from taxes on property and sales, with some exemptions built it. But in any event these taxes are proportionate and keyed to free actions, that is no one is forced to build a mansion and furnish it luxuriously and so incurring huge property and sales taxes.

Which gets us to the progressive income tax which is by designed not strictly proportional. And the motivation for this is only partially utilitarian, it is also a concession to the historical reality that distribution of the gains from productivity are not delivered by some magical and precise division of those gains by the exact contribution of capital and labor inputs, that is a textbook fantasy promulgated by the servants of the winners in this particular game, e.g. the Manchester School.

I have just begun re-reading E.P. Thompson's The Making of the English Working Class and its lesson is clear. You can explain much of the political and economic history of England as a constant battle to protect property rights from democracy, and this too even for those among the leadership of the popular side of the English Civil War. On the one side you have the Leveller Colonel Rainborough:

"For really I think that the poorest he that is in England hath a life to live, as the greatest he; and therefore truly, sir, I think It's clear that every man that is to live under a government ought first by his own consent to put himself under that government .... I should doubt he was an Englishman or no, that should doubt of these things."

This is a demand for universal manhood suffrage. To which Cromwell's son-in-law General Ireton replied

"o person hat a right to an interest or share in the disposing of the affairs of the kingdom... that hath not a permanent fixed interest in this kingdom"

And by what reason does he privilege property holders so?

"All the main thing that I speak for, is because I would have an eye to property, I hope we do not come to contend for victory-but let every man consider with himself that he do not go that way to take away all property. For here is the case of the most fundamental part of the constitution of the kingdon, which if you take away, you take away all that"

Ireton here is drawing a straight line from democracy to socialism and even communism (in the pre-Marx sense), property however acquired is to be protected by the state from the demands of the workers.

The resultant distribution of gains from productivity was the direct result of one sector of society, those who controlled capital, having complete control of the political institutions. This was to some degree less true in the United States, the near absence of a landed aristocracy and the free availability of land to the West leveled the political power some, but still prior to the Progressive movement of the late 19th century political power was largely reserved for large property owners who in turn made sure that no issues around equity or actual analysis of the relative contributions of capital and labor ever entered into the question of distribution of gains of productivity. Instead we have and perhaps still continue to have descendants of the Manchester School acting as apologists for their masters and insisting that any attempts to redress the power imbalance simply a violation of Economic Law carried down on an Invisible Third Tablet from Mt. Sinai.

Progressive taxation is then driven by a democratic understanding that the reason it took Great Britain until 1918 and the U.S. in most respects to the One Man, One Vote rulings of the early sixties is because property owners continued to maintain a thumb on the scale of economic outcomes. The graduated income tax simply being an acknowledgement of historical reality.

So Mankiw's argument rests on fallacious grounds and weasel language. The very use of 'redistribution' builds in the assumption that the initial distribution was strictly proportionate to actual economic inputs. Anyone who ever believed that should have had their eyes opened by AIG bonuses, those bankers, like English aristocrats in the Edwardian Age, had become comfortable with their lavish lifestyles and had no attention of giving them up even after being revealed to be mostly economic parasites. That is Mankiw is serving in the role of Jeeves, the hyper-intelligent and clever servant to his master the hapless Bertie Wooster, here represented by the wealthy and ultra-wealthy of the U.S.

Mankiw wants to blur the line between redistribution and restitution, the wealthy of this country in large part got that way because the political and economic structures have always been rigged in their favor. The progressive and graduated income tax is a method for demanding restitution for their unfair grab of the original gains. To pretend that this is all the same as taxing people on the basis of their height or their I.Q. or whatever is historical nonsense.

2009 Trigger: OASDI Combined

Tables and Figures from the 2009 Report

Angry Bear Social Security Blogging: Northwest Plan edition

The Gathering Storm

Time for Clarity: Income vs Cost & the Six Approaches for 'Fixing' Social Security

The Northwest Plan: a Real Fix for Social Security

Mechanics of the Northwest Plan for a Real Social Security Fix

2009 Social Security Report

Assets of the OAS Trust Fund? or Just Phony IOUs?

Infinite Hooey: PV and Past Participants in Social Security

Sky is not Falling on Social Security

DI Trigger: Fixing What is Broken in Social Security

When Strawmen Collide: Biggs v Lind

NW Plan for a Real Social Security Fix: Ver 2.0

NW Plan: Combined OAS and DI Triggers

Hacktacular!: Robert Samuelson on Social Security

Social Security in Ecolanguage

Probability and Social Security

Northwest Plan for Social Security: Policy Proposal? or Benchmark?

How I Eliminated $15.4 TRILLION in Unfunded Debt: for $1.50 a Week

How the Northwest Plan Eliminates Unfunded Liabilities: Forever

Infinite Hooey: PV and Past Participants

2009 Social Security Report

The 2009 Report of the Trustees of Social Security is due out today 'late afternoon' DC time. Assuming the Trustees use the same file name conventions as they have in the past the following links should come live right as the Report is released to the web. If for some reason they are different you should be able to access the PDF and HTML versions or order the paper version at Reports from the Board of Trustees

Entry page
Table of Contents
List of Tables
List of Figures

CBO Briefing to Social Security Advisory Board

Knowledge and Propaganda: a Draft

(This post was conceived as a response to a post at Angry Bear but it got too unwieldy. The line three quarters down marks the point I stopped my revision meaning there is a gap in the argument. But anyone interested can I think see where I was going. Comments for revisions, corrections, or additions welcome)

by Bruce Webb

Linda Beale asks a challenging question in Misunderstandings about tax

Until we stop just repeating what we hear as though it were factual, we can't expect to hunker down and do the tough work of figuring out how to create a better health care system, make fundamental changes in the way that financial institutions work (see her post for continuation).

While I am in full agreement with Linda on the substance and the challenge we face I am a little bothered by the underlying concept that one group of people is either the victim or perpetrator of propaganda while another group has access to some established body of facts. Reality is a little more messy. If you don't mind some mess follow me below the fold.


DISCLAIMER
And please, keep in mind that I am not a professional student of epistemology or paleontology or the history of science, I am sure any number of people have written with a lot more expertise on any of the issues and examples I use. So feel free to point out refinements and suggestions for future reading. But this is a blog post, hammered out on a Sunday morning for the purposes of starting a discussion about in this case tactics in winning a political message war. No doubt I could make a better case if I read a couple of dozen books and spent a few weeks working it over. Or I could go out for Sunday brunch. I am thinking brunch. Feel free to criticize but understand that this is not intended to be definitive, just hopefully suggestive.
____________________________________
In practice 'true knowledge' is more often than not the result of accepting some one or some groups authority. That is when you pick up a textbook called 'Introduction to Something or Other' you expect that the authors are presenting some kind of synthesis and that that synthesis is somehow 'true'. But a study of History and particularly the History of Science shows that to be deceptive. As an example we can take the example of the Cretaceous-Tertiary Extinction Event which Wiki sums up the current state of 'knowledge' with

Scientists theorize that the K–T extinctions were caused by one or more catastrophic events such as massive asteroid impacts as the Chicxulub impact or increased volcanic activity. Several impact craters and massive volcanic activity in the Deccan traps have been dated to the approximate time of the extinction event. These geological events may have reduced sunlight and hindered photosynthesis, leading to a massive disruption in Earth's ecology. Other researchers believe the extinction was more gradual, resulting from slower changes in sea level or climate.

While there are hints of dissent with 'other researchers' the thrust of the whole article would lead you to believe there is fairly broad consensus among paleontologists around the Alverez Hypothesis. Well it is not my field but I can tell you that at the time the Alverez team published the paper the consensus among the Paleontologists at Berkeley, one of the premier sites for the field, was universally negative and the subsequent battle went very public and spilled over into campus and outside newspapers and publications. Why the bitterness? Well to the Paleo people it seemed to revive a battle between Junk Science and Science that they had won decades ago, that of Catastrophism. Catastrophism was and is invoked by Creationists on the one hand and by disciples of Velikovsky on the other to deny evolution and support biblical time lines. Anything that hinted of it seemed to the professionals in the discipline to be dangerous junk science. (It didn't help that Walter Alverez was from a different Department and was thought to have brought in his far more famous Nobel winning father for simple academic cover).

In time Paleontology found a way to incorporate the Alverez Hypothesis and allow it to be the public face of the field, that is I expect the typical textbook introduction or book for kids presents the asteroid strike theory as standard. But turning to Nancy's question we are faced with a similar problem here. A few years ago the battle between the Freshwater and the Saltwater folk seemed won by the former who were called by some the 'Orthodox' (literally 'right belief') as opposed to the 'Heterodox' ('Other or different belief). And as a byproduct of that victory to some degree won the battle of the 'Introduction to Economics' textbook, with the end result that of Nancy's commenter. He 'knows' what he knows because it is the product of everything he has heard or read on this subject from people whose authority he accepts.

The problem we fact is that most people on most subjects can only push back based on what they have heard or read on this subject. That is I know lots and lots of stuff about Ancient Rome because I took lots of classes and lots of books from people widely considered to be experts in the field. On the other hand my counterparts in Paleontology were taught to reject the Alvarez Hypothesis out of hand by people widely considered to be THE experts in the field. Authority is not always determinative.

So what if we skip appeals to authority and just resort to facts, as for example official statistics and the historical record. Well the problem turns out that often we don't really know what we are measuring to start with, a very large fraction of what Forbes counted as 'wealth' turned out to be illusory, the data was infused with some assumptions that turned out to be unsustainable. And this turns out to be true of most 'facts' and almost all of the 'historical record'. Most people think of History as being just someone writing down what happened. In reality there is no day by day recording of the past, instead the course of events and the motivations of the actors have to be extracted from documentary material that mostly were produced for purposes other than historical. And for those pieces that were in some since historical were themselves the product of the same process and often enough infused with the particular purpose of the Chronicler. And in sorting all of this out it is almost impossible for the historian not to allow his views of politics and sociology shape the narrative.

As an example in Roman history Julius Caesar is generally treated in a fairly negative fashion compared to his rival Pompey the Great or his successor Augustus. Similarly the Gracchi brothers are cast in a negative light compared to their opponents. And in my view the reason is relatively simple, when the basics of the field were being hammered out in the late eighteenth and the nineteenth century society was marked by extensive popular unrest revolving around extending political power to the masses. It turns out that almost all the people studying Roman people were socially, economically, and culturally aligned with the Gentry and Merchant Class, for them Caesar and the Gracchi's were dangerous enablers of demogogy. That is the class struggle around the Reform Act of 1832 and the Chartists spilled over into the founding history books of the field and were mostly carried forward to the current day. And trying to tell a countervailing narrative is very difficult, it just doesn't accord with what people 'know' about Rome.

Similarly British medieval history was first systematically addressed in the latter half of the 19th Century with historians roughly split between those aligned with the country Gentry (Whigs) and those aligned with the interests of industrialization and trade (Liberals) with a sprinkling of those focusing on workers revolutions (Marxists and Social Democrats). For very different reasons each camp had reasons for wanting to believe that the typical medieval peasant lived in a constant state of filth clinging to the edge of subsistance. Whigs who had spent the last couple centuries driving peasants off their lands could defend themselves by claiming their existence was so miserable before that even homelessness would be better. The Liberals were committed to the belief that they could get away with wage suppression because after all that would be an improvement. As for the Marxists I'll let other people explain it better, their theory of class struggle and economic development required a belief in total feudal exploitation of workers as well. When attention in the post-war era finally turned to the actual conditions of rural life in medieval Britain the picture gets more mixed. It definitely wasn't the Merrie Olde England as represented in Robin Hood, but neither was it that of Monty Python and the Holy Grail. But once again pushing back on the established narrative is almost impossible. Everyone 'knows' that medieval people were filthy and even the rich were illiterate and almost everyone died before the age of forty. Well none of that is particularly true but good luck telling a different story.

You see the same effect in treatments of American history. At one point I had possession of my Great Grandfather's eighth grade American History textbook written sometime in the 1870s. It turns out that what I 'knew' about the founding of the American colonies was much different than what Grandpa Grant 'knew' about those same events and what he 'knew' was a whole lot more complex and violent than what I 'knew'. (It turns out there were many more colonies established by various European countries along the east coast than I 'knew' and most of them failed not because of bad winters, but instead by being burned out by rivals). When Grandpa Grant was growing up America was aggressively fighting the Indian Wars and Britain was equally aggressive in building its Empire, taking the resources of others by force was just what great countries did, there was no need to sugar-coat early American history. The fact that the United States had undertaken a frankly aggressive war against Mexico and simply took over roughly half of its territory was something to be celebrated

By the time I came around it was different. In 1957 we were locked in a struggle between Godly Freedom and Godless Communism and social reality and hence 'truth' was shaped around that. For example 'In God We Trust' which had been an authorized but not universal slogan for coinage was added to all coins in the 1950s and the words 'Under God' inserted in the pledge of allegiance and soon enough everyone 'knew' that America had always been founded on Christian principles and devoted to Freedom of Religion and Democracy. (In a quick Google visit the Christian or not question would seem to rest on the question of whether Unitarians are really Christians, a fight for another time). Moreover America's self-appointed role as promoter of freedom and democracy and generally anti-colonial stance meant kind of sweeping the Mexican War, the Annexation of Hawaii, and the Spanish-American War somewhat under the table. Russia asserting its rights to Empire? Bad. Japans attempts to enforce the Greater East Asian Co-Prosperity Sphere? Bad. The United States kicking the shit out of Mexico and stealing California? Well that is just Manifest Destiny. Doing the same to Spain in 1898? 'Remember the Maine'. Because God forbid anyone challenge America's world-historical role of Christian Exceptionalism and all around Good Guys.

So we can see that very often our 'true knowledge' about the 'historical record' is the result of a social construct which is sometimes concious and sometimes not. And this is true from both sides.

______________________________

Just as most people read newspapers and watch TV news and think that is just what happened yesterday or today. But people who actually practice history understand that is is a matter of interpreting often fragmentary data into a narrative shaped in large part by the social reality the historian brings to it, it is almost impossible to produceAnd so I have friends who come to me and repeat the most ridiculous wingnut talking points and when I push back they say "hey I heard it on 'Dori Monson". And if I retort well 'Dean Baker and Nancy Beale say that is ridiculous' they could respond 'Who' and 'How many listeners/readers do they have'. And you really don't have a ready answer.

I follow and trust Paul Krugman and Dean Baker, while I may quibble with some of what they say I am confident that they are speaking the truth as they know it. On the other hand the former was widely regarded for years as a shrill victim of BDS and the second a crank that didn't understand how the Great Moderation may have solved all economic problems for all time (except Social Security which was irretrievably broken). (Link is to 2004 speech by Bernanke). That I believe that the 'facts' have proven Paul and Dean to be 'right' is in the end mostly just the result of things I have heard or read in documents and reports that I don't always have the means or time to independently check. Nor can I expect other people to just accept my judgement that the things they believe are 'right' on the basis of what they heard or wrote in documents or reports that they didn't independently check.

In the end it comes down to a question of credibility and authority. How do you convince the majority to accept what may be a minority opinion as in fact authoritative? I mean Copernicus was right, which didn't keep Galileo from being convicted of heresy for defending him. I don't know the answer to Linda's question. I do know it is not as simple as just appealing to the 'facts' and 'knowledge'. Both turn out to be more fuzzy and dependent on authority than we might wish.

Well one problem is that for the most part you come to both true knowledge and false knowledge in the same way by reading and hearing things from people whose authority you have learned to trust. For example the typical school child regards his textbooks and the encyclopedia as neutral sources of fact, as representing the ways things are.




target="_blank"

Is there an epidemiologist in the house?

Word is now out that swine flu started spreading at least two weeks before the first confirmed case on April 13th.NYT: From Édgar, 5, Coughs Heard Round the World Key passages from the story

The government has identified Édgar as the first person in Mexico to have become infected with a virulent strain of swine flu, a notoriety that could raise questions about how Mexican officials reacted — or failed to react — to the early stages of what might become a global epidemic.

Édgar was one of hundreds of people in La Gloria who came down with flulike symptoms in an outbreak that federal officials say began March 9.

What was the result?

In La Gloria, a town that has a major pig farming industry, two children died of the flu in March and early April, though the authorities said they had yet to determine whether it was the same strain that infected Édgar and spread widely to other locales. That and other questions have left residents here unnerved and confused.

We don't know how many of these people had this strain because it seems that only Edgar's sample was actually saved for testing, but Occam's Razor suggests that we are talking about one bug spreading. Now it is true that the local authorities didn't agree, at least not initially. Swine flu's ground zero? Residents say nearby farm

The people in this town of 3,000 high in the Veracruz mountains believe their community is ground zero for the swine flu epidemic, even if health officials deny it.
The town is home to Mexico's earliest confirmed case of swine flu, a 4-year-old boy who was among more than 450 residents who complained of respiratory problems. They blame contamination spread by pig waste at nearby breeding farms co-owned by a U.S. company. But the company says it found no sign of swine flu on its farms, and Mexican authorities haven't determined how or where the swine flu outbreak began.
As early as February, residents began complaining of unusually strong flu symptoms. They blamed a farm that lies upwind, five miles (8.5 kilometers) to the north. By late March, roughly one-sixth of the community of 3,000 began suffering from severe respiratory infections.
Local health officials and Federal Health Secretary Jose Angel Cordova downplayed claims that the swine flu epidemic could have started in La Gloria, noting that of 30 mucous samples taken from respiratory patients there, only 4-year-old Edgar Hernandez's came back positive. That confirmation that the boy's virus was H1N1 — a strange new mix of pig, bird and human flu virus — wasn't made until last week, when signs of the outbreak elsewhere prompted a second look at his sample.
Cordova insists the rest of the community had suffered from H2N3, a common flu.

So lets break this down. Starting in February up to 450 out of 3000 inhabitants were suffering from severe flu symptoms, suggesting that even more were infected with a milder version. In any event we have something is is obviously quite contagious but not notably deadly. This is somewhat confirmed by the fact that reports are coming in from around the world that people returning from tourist trips to Mexico are showing signs of the disease but in almost all cases a relatively mild version. Plus it seems that they picked this up in many different parts of Mexico, for example the NY kids were in Cancun.

All of which suggest this possibility, first hinted at by Sanjay Gupta a couple of days ago, that the flu is already an epidemic throughout Mexico but relatively few are dying of it. A couple of days ago there were 81 fatalities, today that is up to 149. But Mexico City has 20,000,000 people. If we take La Gloria as our template we have 15% of the people with severe symptoms with 2 of those 450 having died. Suggesting a mortality rate among the infected of 0.5%. 15% of 20,000,000 equals 3 million people with severe symptoms. 0.5% of that is 15000. Yeah that is a big number but is just 1 in 1333 inhabitants.

There is a hell of a lot of uncertainty here. We have no idea of how many people have been exposed to what. But it is at least possible that almost everyone in Mexico has been exposed and that only in the biggest cities are the fatality numbers big enough to notice. Anyway the next few days should tell, if the mortality numbers flatten then we might conclude we are actually on the downward path of a not that deadly flu epidemic, while if the numbers start rising we may be on the brink of disaster. But if it all turns out better tha

Greenspan Commission Tables

How the Trust Fund Surplus Vanished-Or Didn't

Draft for AB

by Bruce Webb
(For some reason I am having problems getting this saved over at AB so I will just try to publish it here. The piece is incomplete as is, the parts that are not quite ready have been placed in italics)

In the course of a post called the The Vanishing Surplus-Revealed I made some claims that the promoters of this claim were using a novel sense of 'surplus'. Well it turned out that this sense was not really novel, it had indeed been used for certain technical purposes. Still I maintain there was an intent to deceive. And to explain why I propose to revisit the concepts of 'surplus' 'deficit' and 'debt' as normally used in reporting intended for the public. I fully expect this discussion to result in a flame war, those who find such things distasteful are urged to just move on. On the other hand I believe there is some value added by clarifying the issue. So you can with Dante at the Gates of Hell accept the consequences of 'Abandon All Hope Ye Who Enter Here' and follow me below the fold. Or take the more prudent advice of 'Move Along Folks, Nothing to See'. Your choice.


What does it mean when we say that a current year deficit adds to the Federal debt as in 'CBO projects Obama budgets will add $3 trillion more in debt by 2019 than the Adminstration projected in February"? Or what are they talking about when Congress periodically talk about raising the debt limit? Well it turns out to not that simple. The simplest measure of national debt is that given us by the U.S. National Debt Clock whose most famous version is seen in Times Square. This version summarizes the debt situation as follows

The Outstanding Public Debt as of 15 Apr 2009 at 05:13:40 PM GMT is:
$11,176,896,295,826.53
The estimated population of the United States is 306,006,590
so each citizen's share of this debt is $36,525.02.
The National Debt has continued to increase an average of $3.84 billion per day since September 28, 2007!
Concerned? Then tell Congress and the White House

This is what I am calling 'Headline' Debt, it is this measure that you will see in the headlines and in coverage of the Tea Baggers. On the other hand if you go to the Treasury's Debt to the Penny you will a more complex view. At the close of business April 13th, total Public Debt stood at $11,169,978,555,115.48. But this breaks down to two components, Debt held by the Public at $6.893 trillion and Intragovernmental Holdings at $4.276 trillion. This in turn breaks down as follows. (chart from Wiki)

First thing of note, the OAS, DI, HI, SMI Trust Funds all are treated separately. Second note interest on those Trust Funds ARE counted as Public Debt, the $2.203 trillion shown as OAS debt in the chart above equating exactly to the year end balance and assets respectively in the following two balance sheet from the Dec. 2008 Montly Trust Fund Report.


(Note too that the second balance sheet showed $0 in "Interest receivable" while the second showed that of $52.95 billion in interest earned year-to-date fully $52.85 billion was credited in December leaving only $100 million credited in Oct and Nov. Meaning you can't just pick any month of the year and draw conclusions, in total context only June and Dec are meaningful.)

So 'Public Debt' as reported on the Debt Clock includes total Trust Fund balances including interest earned as of Dec 2008. The Trust Funds are thus included in what I am calling 'Headline debt'. How does that relate to 'Headline surplus/deficit'?

Well Movie Guy directs us to this from Michael Boskin . Sense and Nonsense About Federal Deficits
and Debt and quotes it as follows (bolding mine)

"To make sense of these issues, economists employ several related measures in addition to the traditional nominal cash budget balance (see Table 1)."

Table 1
Alternative Budget Surplus/Deficit Concepts

1. Unified nominal surplus/deficit = nominal revenues – nominal outlays; “headline” numbers
2. Operating surplus/deficit = unified deficit – net investment (public capital investment - depreciation of public capital)
3. Primary surplus/deficit = unified deficit – interest outlays on inherited debt
4. Cyclically adjusted surplus/deficit: unified deficit adjusted to “high employment,” i.e., removes effect (+ and – ) of business cycle on revenues and outlays; i.e., removes effect of “automatic stabilizers”
5. Standardized surplus/deficit: adjusts unified deficit for business cycle and some other transitory items, e.g., the inflation component of interest, receipts from allies for Desert Storm, deposit insurance outlays for failed S&Ls, that are unlikely to affect real income

Meaning that the 'traditional' 'headline' surplus/deficit is the Unified Surplus/Deficit which includes 'net interest' and NOT the Primary Surplus/Deficit which excludes it and seems limited to technical discussions as opposed to those aimed at the pubilic.

When CBO released its March 2009 Preliminary Analysis of the Presidents Budget it was explicitly explained as an increase in the 'deficit' of an extra $2.3 trillion dollars over the $6.9 trillion predicted by OMB for 2009 to 2019. And not a single AB critic discounted that increase for the amount actually due to a DECREASE in projected interest on the Trust Funds. First the tables:
CBO March

OMB Feb

This is where it gets hard. For Unified Budget purposes Social Security surpluses including interest show up as Revenue in the current year and so to that degree offset somewhat General Fund deficits. On the other hand they also show up as Public Debt

What do we have so far? Well I have shown that Trust Fund interest shows up in Public Debt which is also what most people think of as 'Federal Debt' (as in Debt Clock). It is thus part of 'Headline Debt'.also shows up in

And there is a similar situation when it comes to 'debt'. I'll turn this over to Peter Orszag

How much does the federal government owe? It might seem like a simple question to ask those of us wearing the green eyeshades, but there are lots of different concepts used to answer it. For example, at the end of fiscal year 2008:
Debt held by the public net of financial assets— the measure I find to be most meaningful — stood at $5.3 trillion (37 percent of GDP).
Debt held by the public was equal to about $5.8 trillion (41 percent of GDP).
Gross debt equaled $10.0 trillion (70 percent of GDP).
What do each of these concepts represent?

Let me proceed in reverse order, and begin with gross debt. Gross debt has two components: debt held by the public—which I will discuss more in a moment— and intragovernmental debt. Intragovernmental debt is, essentially, debt that the government owes to itself—as of the end of last year, it totaled $4.2 trillion. The majority of this debt is issued to the Social Security Trust Fund, and most of the remainder is issued to other trust funds, such as the Civil Service Retirement and Medicare Trust Funds. These trust funds are required to invest their surpluses in government bonds. While the federal government will certainly make good on the IOUs issued to these trust funds, they should not be counted when assessing the financial state of the federal government as a whole.

. Yet most commenters do use Gross debt as the proper measure. Orszag again (bolding mine)

One branch of the government issuing debt to another branch may make one branch poorer relative to the other branch—but it does not affect the overall financial state of the government. For example, when I tell my daughter and son that I owe them each $10 for their allowances, I am poorer, and they are richer—as a family, though, there is no change in our overall finances. That’s why the Congressional Budget Office, the Office of Management and Budget (including under the prior administration), and the Government Accountability Office all agree that gross debt is not a meaningful metric for assessing the government’s current fiscal position. Yet, the world being what it is, this number is quoted often.

Now it is just a fact that both Unified Budget surplus/deficit and Gross debt each include interest on the Trust Funds

Now there is an argument that it SHOULD be the one so used for example we have this from Orszag at OMB

They are not wrong in doing so because when OMB and CBO scores the effect of those spending proposals they explicitly confine themselves to that measure. For example here is Table S-1 from the Presidents Feb Budget proposal.


Which we could compare to CBO's March 2009 OASDI Baseline

In each case when they use the term 'deficit' they take that by subtracting 'Outlays' from from 'Receipts' "headline" number.
To which we could compare CBO's August 2008 The Budget and Economic Outlook: Fiscal Years 2008 to 2018

In this Table CBO breaks it down a little differently, instead of taking total receipts and subtracting total out lays they take On Budget deficit/surplus and add it to Off-Budget deficit/surplus to produce overall 'deficit/surplus'.


target="_blank"

Fred Hiatt's Wise Men

THE HONORABLE C. FRED BERGSTEN -----THE HONORABLE WILLIAM BROCK -----DR. WILLIAM BRODY
GENERAL MICHAEL CARNS, USAF (RET.)-----THE HONORABLE CHUCK HAGEL ----THE HONORABLE LEE HAMILTON
THE HONORABLE CARLA HILLS-----THE HONORABLE DR. SHIRLEY ANN JACKSON -----ADMIRAL JAMES LOY, USCG (RET.)
GENERAL BARRY MCCAFFREY, USA (RET.)-----THE HONORABLE EDWIN MEESE -----THE HONORABLE NEWTON MINNOW
THE HONORABLE SAM NUNN-----THE HONORABLE THOMAS PICKERING-----ADMIRAL JOSEPH PRUEHER, USN (RET.)
THE HONORABLE THOMAS RIDGE -----THE HONORABLE RICHARD SOLOMON-----THE HONORABLE DR. LOUIS SULLIVAN
THE HONORABLE TOGO WEST, JR. -----DR. DANIEL YERGIN

Yep absolutely no interest groups or partisan elements from a plan proposed by four retired generals and admirals (one each from the Air Force, Army, Navy and Coast Guard), a former Secretary of the Army (West) and perhaps the biggest Democratic Defence Hawk since Scoop Jackson and John Stennis died (Scoop has a Ballistic Missile Sub named after him, Stennis has an Aircraft Carrier, what are the odds that Nunn is going to blow his chances for his own ship by proposing big cuts in defence spending in the interest of a balanced budget?) Lets see how is this group filled out? Well we have two more past Congressional defence hawks with Hagel and Hamilton . Plus I see a bunch of Bush 1 & 2 cabinet level officials (Brock, Hills, Pickering, Ridge, Sullivan) and in a blast from the past Ed Meese. Now Dr. Jackson served in the Clinton Administration as head of the Nuclear Regulatory Administration and Newton Minnow came out as an early Obama supporter but taken as a whole this group goes from the Center to the Right and has very strong ties to the Military-Industrial complex. Which is Hiatt's world fully qualifies them to be the 'Wise Men'.

The Vanishing Surplus-Revealed

Trust Fund Operations and Assets

This table shows actual assets in the OAS Trust Fund, It is in support of a new post over at Angry Bear. See you there.

Trust Fund Monthly Reports: Jan-Feb

Okay we have a DI Trust Fund whose assets went from $217.2 billion at the end of January to $216.2 billion at the end of February, a deficit of a $1 bn. Similarly we have an OAS Trust Fund whose assets went from $2.228 trillion to $2.237 trillion, a surplus of $9 bn. If we add the January numbers we have a starting combined balance of $2.445 trillion and if we add the February ones we get $2.453 trillion for a total surplus of $8 billion for the month.

Now compare that to the numbers in the following post at Notes on Social Security Reform Slowdown Slashes Social Security Surplus where he shows DI going from $216.2 billion at the end of Feb to $214.4 billion, a deficit of $1.8 billion and OAS going from $2.219.0 trillion to $2.219.5 trillion, for a surplus of $500 million. Which totals out to $2.434 trillion down a net $1.25 billion for the month.

Now his numbers are not made up, they come from a different section of the documents that supplied the Tables. So how can the same data set show a combined surplus of $8 billion in one place and a combined deficit of $1.25 billion somewhere else? Well on inspection it seems the answer is in the line item "Interest Receivable'. In the case of DI it went up from $907 million to $1.7 billion, in the case of OAS it went up from $9.2 billion to $17.4 billion in each case totally explaining the differences.

So maybe some of the hype surrounding 'Vanishing surpluses' needs to be put on hold.

CBO vs OMB Economic Projections

Lifted from Comments at Washington Monthly

(This started as a comment responding to Hilzoy but grew out of control, so instead of trying to post it there I'll put it here)

You can come up with a scenario to justify even the most exotic loan, particularly if you are a straight out investor. The main problem in my mind was a system that essentially forced real estate investors into fraud.

Because almost all of these products are restricted to owner-occupier borrowers. There is a perfectly good reason for that, traditionally owner-occ are less willing to default and more likely to take actions that preserve the value of the property. So you can't blame the underwriters.

On the other hands the rates for making a commercial loan to buy residential investment property were much higher than an owner-occ loan, enough higher that in many cases you couldn't make your cap rate work, you couldn't get enough cash flow from rent to cover the costs of carrying the loan without tying up all your operating capital.

Not all speculators are flat out gamblers. A lot of people made money buying houses with as little down as possible at the lowest initial rate with the full understanding that exiting the loan in the planned time frame was going to require a new round of financing with associated fees and penalties. For an investor a pre-payment penalty is just part of the cost, in effect it acts exactly like paying points does, it lowers the cost of carrying the loan, with the added advantage of coming at the back end of the total transaction, and hopefully out of the accrued equity.

The only problem is that the loans available that actually make the strategy work are technically and legally not available to the investor no matter how well capitalized he is. There is money just sitting on the table ready to pick up if you can just get someone to write you a loan. And there are or were plenty of lenders ready, willing and able to write you that loan. If you qualified for owner-occupied.

The result was predictable, real estate investors took out whole series of 'owner-occ' loans and often on multiple properties. And yes often with really exotic loan products that make about zero sense for an actual owner-occupier but work for the investor.

Sure it was fraud but in a rising market mostly though not totally a benign fraud. And absent a total freeze-up in credit there was always a way to exit even if appreciation didn't come in the way you expected, because you only lose money on the last round, and maybe not then.

But we had a total freeze-up in credit. And everyone got locked in benigh and malign fraudsters alike. Because Wall Street panicked.

Certainly there was a lot of predatory lending going on, and some people at Countrywide and Washington Mutual are right to be concerned about fooling ACTUAL owner-occupiers into buying houses too big and with too ridiculous terms for what they could afford. Some people need to do some serious jail time.

On the other hand a lot of people were just trying to make a buck buying rentals, managing those rentals for a period of time, and then selling them to a new investor. And a lot of other people were interested to selling those people loans that would pass muster with the underwriter which might require a friendly appraiser. And a certification that you actually planned to live in the house. Oops that was the catch, the obstacle that kept all parties, the seller, the buyer/investor, the lender, the appraiser, the escrow agent from sealing the deal. And people simply agreed to blink.

One last thing. There is some talk about 'liar loans', that is 'stated income/stated assets'. And a lot of this was straight out predation by lenders who might be acting without the knowledge of borrowers, while some of it was people who just wanted more house than they could realistically afford. But not all of it. Because the reason some of our clients and some of our company investments were funded by 'stated/stated' loans with a higher rate than a conventional loan was because ACTUAL assets and ACTUAL income was TOO HIGH to realistically qualify for an owner-occ loan on that particular property. If we had a wealthy out of state investor who wanted to pick up some property for us to manage it would have been kind of difficult to explain why he wanted to relocate from his mansion outside Philly to a three bedroom two bath rambler in a working class neighborhood.

My ex-company was providing a reasonable public service for a reasonable profit. We never to my knowledge put someone in a house they couldn't afford and we were a pretty decent landlord for the multiple properties we managed on our behalf and those of our investors. But in a system where the only way to get a reasonably priced loan for residential investment property is to claim you are an owner-occupier and where there is literally no one tasked to actually check, well investors are going to take the loan.

Draft of 'Four crises'

(This piece is incomplete and may be junked altogether. But any comments/advice etc are welcome)
by Bruce Webb

Much of the conceptual confusion around Social Security derives from the fact that 'crisis' is defined in (at least) four different broad categories resulting in proposed solutions that don't even meet the frame of the objector. So I propose to unpack the various versions and then discuss the ways the framing shapes the resulting rhetoric.

Crisis 1: Benefits Crisis. This holds that the problem is a gap between cost and scheduled benefits that should if possible be addressed with a fix that maintained the highest attainable benefit.

Crisis 2: Financing Crisis. This holds that the problem is a gap between promised benefits and financing that if possible should be addressed with a fix that maintains affordable financing.

Crisis 3: Socialism Crisis. This holds that the problem is that the government even addressed this issue in the first place. For example Milton Friedman believed Social Security was immoral and should be liquidated by given everyone securities in exact proportion to their past contributions and projected benefits. (That is he maintains the government obligation to the past while getting it out of the business going forward.)

Crisis 4: Pure Opportunism. This holds that the problem is actually an opportunity to make a huge amount of money by privatizing the system.

For the most part people who are motivated by Crisis 3 or 4 are not able to operate in the open. Particularly these days when most Americans are not saying 'Man if we had only allowed Wall Street to take a cut out of every Social Security dollar they wouldn't have to cut back on corporate jet purchases.' And while most Americans have been conditioned to shudder when they hear the word 'Socialism' they don't by and large associate that with the multi-colored check that shows up in their parents mailbox each month. Instead Crisis 3 and 4 people have to hide themselves behind arguments derived from Crisis 1 or 2. Which brings up the problem of sincerity. How do you positively identify people who are fundamentally being driven by Ideology (3) or Greed (4) when they are using arguments drawn from Finance (2)? Well you can't, which is why I rarely try. You can suspect or know that that your debate component is just fronting for Wall Street or alternatively the Austrian Alps, but while you can make them uncomfortable mostly you can't pin them down. Instead the debate generally resolves to Crisis 1 vs Crisis 2.


Which is where the big battle is waged. Something I will discuss under the fold.

First thing to note is that Crisis 1 and 2 are almost irreconcilable. People who believe in Crisis 2 are simply not going to be convinced by arguments that fixing Crisis 1 would be cheap because they are not committed to the concept that Crisis 1 is important. For whatever reason Crisis 2 people simply don't want to pay any more now or in the future.


Starting from the bottom with Crisis 4. Supporters of traditional social security often claim opponents are only bent on getting ahold of pretty much the only huge stream of money that they don't control. And it is a big pot, in 2007 Social Security took in $785 billion in receipts and disbursed $589 billion in benefits Table III.A3.—Operations of the Combined OASI and DI Trust Funds, Calendar Year 2007 [In millions]. Surely there are opportunities for someone to skim off hundreds of millions off the top of that huge river of cash. Well there are two complications to that. One is operational, currently Social Security operates with administration costs right under 1% of receipts and less of total costs and are servicing 10s of millions of beneficiaries. But the second is rhetorical, the people who might think they can make huge money off of retirees just can't come out and admit that in the open. Which means that people who are really motivated by Crisis 4 have to hide themselves behind Crisis 1 or 2 and promise better results at a lower cost. (A result that is in my view not really possible.) In any case these people are mostly marginalized in the debate.

As are people who are really believers in Crisis 3. The American people by and large have been conditioned to think bad things when they hear the word 'Socialism', like labor camps. They have equally been conditioned to think such things when they hear 'Government Health Care'. But by and large they don't put Social Security into the first category or Medicare into the second. I remember back in the last go around of Medicare 'reform' one woman being quoted to the effect "I don't care what the government does, as long as they keep their hands off my Medicare". In the face of that the libertarian/glibertarian camp pretty much has to fall back on arguments about the superior efficiency of private markets and line up behind Crisis 1 or 2 right with the opportunists.






target="_blank"