News Do Americans Now Favor Government Intervention in the Economy?

[fourier jr]

Americans want government to act on economy: poll
By Christopher Hinton, MarketWatch
Last update: 1:23 p.m. EST Dec. 11, 2007

NEW YORK (MarketWatch) -- Americans are becoming more pessimistic on the domestic economy and their financial futures, blaming employer disloyalty and stinginess along with rotten government policy, according to a new poll sponsored by Change to Win, an association of worker unions.

Most surprising, however, is that voters attitude towards government intervention has shifted from "hands off!" to "take action!" said Celinda Lake of Lake Research Partners, which conducted the poll for Change to Win.

"In the 80s, government wasn't the solution, and in that context we were stunned to see how many voters - particularly swing voters who are typically anti government - have said things are so bad that government has to take action," Lake said on a conference call with reporters.

*snip*

http://www.marketwatch.com/news/story/story.aspx?guid={A0785CDE-37D3-4306-93CF-F1CECC6C7513}

Maybe it's time for another New Deal, but that will never happen. We all know what happened after the first one...

 

[Economist]

Americans want more government

This statement definitely sounds true to me. I guess that makes me a radical then.

 

[Astronuc]

I think Americans want a government that works for the people, that observes good stewardship, and is ethical and moral, rather than the dysfunctional mess we now have.

 

[Greg Bernhardt]

Once we go through the hillary era the pendulum will swing the other way. It's the circle of life. Rinse and repeat.

 

[Astronuc]

So Greg, if you and chroot become President and VP, then the PF mentors can be your cabinet. So how about it? We need a third alternative.

 

[mheslep]

Once we go through the hillary era ...

Never going to happen.

 

[Astronuc]

Never going to happen.

You mean, we're not going to survive the Hillary years?

 

[BobG]

Attitudes about the economy are gloomy, but not worse than they've been before. Maybe it's just such a long string of bad numbers rather than anything specific about today.

The Cash Index poll measures people's short term outlook on the economy. 100 is average with above 100 indicating optimism and less than 100 indicating pessimism. Usually, the numbers fluctuate both above and below 100, but the poll doesn't go enough years back to show many months over 100. In fact, for most of 2004, the numbers indicated a sure Bush defeat since you generally need numbers over a 100 to win re-election and no candidate had won re-election with numbers below around 95 (I can't remember the exact number).

The Consumer Comfort Index guages consumer's attitudes about current conditions (rather than future conditions) and average should be 0 with positive numbers being good and negative numbers being bad. Once again, the poll doesn't go back enough years to show many positive numbers.

The details in the Consumer Comfort Index show why the numbers are so bad in spite of what seems like a pretty solid economy. If you make less than $50K a year, things like gas prices mean a whole lot more to you than the Stock Market. It kind of confirms the idea of a growing income gap where some are doing great (at least until the last couple weeks) while people making less than $50K have been kind of stuck in place.

 

[Economist]

I think Americans want a government that works for the people, that observes good stewardship, and is ethical and moral, rather than the dysfunctional mess we now have.

Tis the nature of government. I'm suprised more people haven't given up on this nonexistent utopian vision of government.

If only F.A. Hayek were still alive.

 

[mheslep]

You mean, we're not going to survive the Hillary years?

 

[russ_watters]

Liberals studying something for other liberals found that Americans want liberal policies enacted? I'm shocked!

 

[ShawnD]

Liberals studying something for other liberals found that Americans want liberal policies enacted? I'm shocked!

That's the first thing I thought when I read the OP. Let met repost it with some of the filler taken out.

"Americans are becoming more pessimistic on the domestic economy and their financial futures according to a new poll sponsored by an association of worker unions."

I'm not saying unions are wrong, but they would probably come to the same conclusion even if the economy was doing great. (it might be doing great right now even, assuming you're not part of that subprime thing)

 

[Economist]

but they would probably come to the same conclusion even if the economy was doing great.

Interestingly I want to an academic seminar where a researcher was discussing his study to a group of professors. He took a look at many newspaper reports over the past 20 - 30 years, to see if economic data was reported differently depending on who was president. His findings were that people had a more pessimistic view of the economy when a republican was in office, even when controlling for the same exact economic data (unemployment rates, GDP growth, inflation, etc). And just to be clear, he was only looking at reports of data/figures/statistics. For example, he would compare the following headlines "The economy looking good at a low umemployment rate of just 4.5%" vs "The economy isn't doing that well at an depressing unemployment rate of 4.5%." In other words, he was looking at the differences in the way the same numbers are reported given the party of who's in office.

 

[ShawnD]

Did your prof also account for which way the numbers were changing? If the unemployment is incredibly low then it increases to 4.5, that would be a a gloomy story to run. If it's very high then it drops to 4.5, that would be a positive story.

 

[opus]

I am incredibly sceptical of that poll, as the West tends to be moving towards less government, more so than more government. At least, that has been the global trend since Thatcher-Reagan. First with Europe, moving towards more liberal policies, since the creation of the EU. Sarkozy promises "revolutionary" change. Similarly with the years of Howard for Australia and both Chretien and Harper for Canada. Blair overall did little economically post-Thatcher.

 

[turbo]

Unemployment percentage is one of the slipperiest, slimiest numbers you can use to gauge the health of the economy. Let's look at the case of a small town. If a small manufacturing facility shuts down and 20 people lose their jobs ($15/hr plus some benefits), but are able to get minimum-wage jobs with no benefits 20 miles away at a new Super WalMart, the unemployment rate for that region will not budge, though few would see this as a positive development for the local economy. If those 20 people cannot find work, the unemployment rate will show an up-tick until they are no longer eligible for unemployment benefits, at which time the rate will settle back to its previous level. If a new owner subsequently re-opens that manufacturing facility and hires back the 20 people, the unemployment rate will not budge because those workers are no longer eligible for benefits and won't show up in the unemployment rolls.

Over-simplified examples, but they are indicative of how the raw unemployment numbers can be used to convey good and bad news, while the underlying reality is contradictory.

Thanks to the big supermarkets, retail chains, fast-food joints, etc, there is a large population of people who work just under 40 hours/week (nominally part-time workers) for whom no unemployment benefits accrue. Since they cannot file for unemployment if they are laid off, they never show up in the unemployment figures. The "lucky" ones are the people in the "Assistant Manager" positions who get paid a flat salary with no overtime pay and who are required to work as many hours as the managers want.

When I was working in a local paper mill, the wife of one of the junior members of our crew was scheduled to work 38 hours/week in a chain supermarket in their town. She worked afternoons until closing, and the manager made her responsible for cashing up all the registers every night, balancing the receipts, and loading up all the cash drawers with the correct amount of cash in each denomination so that they were ready for the next morning's opening. This took time, and it put her hours beyond that magical 40 hours/week required for full-time employment status. She asked the manager to pay her for the hours that she put in, including overtime pay, and instead she was not scheduled for any hours for the next two weeks, to teach her a lesson. Wal Mart pulls the same stuff with their employees, but it takes class-action lawsuits to fight them. My co-worker's wife learned to keep her mouth shut and take her "part-time" pay.

 

[opus]

You should talk to sessional professors at universities. I wonder what Economist thinks of a non-tenured prof overlooking his thesis or an economics prof's view of sessionals entirely.

Unfortunately, temporary and contracted work is increasing and slowly becoming the norm. Unions are not in the self-interests of corporations, and part-time employment with no benefits is one way to achieve this. People then start to work two part-time jobs instead of one full-time to sustain a livable income. Class-action lawsuits means you're fighting against a strong corporate legal team that the corporation can afford.

 

[Ivan Seeking]

Once we go through the hillary era the pendulum will swing the other way. It's the circle of life. Rinse and repeat.

Political systems come and go as well.

 

[ShawnD]

Thanks to the big supermarkets, retail chains, fast-food joints, etc, there is a large population of people who work just under 40 hours/week (nominally part-time workers) for whom no unemployment benefits accrue. Since they cannot file for unemployment if they are laid off, they never show up in the unemployment figures.

Do people in the US really only show up on stats if they work 40 hours per week? Full time in UK is 32 hours, Canada is 35, and I think France is 35 as well. My full time job is 35 hours (most jobs are 37.5). Even part time and seasonal jobs in Canada pay into Unemployment Insurance, which is collected when you are fired/quit.

I would assume the US has similar programs in place. While someone may not be able to get welfare, such as a kid living with his parents, everybody is able to get UI when they are fired.

 

[Astronuc]

I am incredibly sceptical of that poll, as the West tends to be moving towards less government, more so than more government. At least, that has been the global trend since Thatcher-Reagan. First with Europe, moving towards more liberal policies, since the creation of the EU. Sarkozy promises "revolutionary" change. Similarly with the years of Howard for Australia and both Chretien and Harper for Canada. Blair overall did little economically post-Thatcher.

Frankly, I don't see that. "Less government" was the mantra of the Reagan administration, which would be fine if it was true.

What I observered in the meantime is that the expenditure of government has increased, not decreased, which leaves me to wonder, 'if government is shrinking, why are expeditures increasing, and certainly why faster than revenue?' Certainly some of that has to do with increased expenditure on 'entitlements'.

However, I think there is more government, and that includes outsourching government functions to private/public corporations, which not surprisingly have political and economic ties to those politicians in government.

I have yet to see a US administration or Congress exercise good stewardship.

 

[turbo]

Do people in the US really only show up on stats if they work 40 hours per week? Full time in UK is 32 hours, Canada is 35, and I think France is 35 as well. My full time job is 35 hours (most jobs are 37.5). Even part time and seasonal jobs in Canada pay into Unemployment Insurance, which is collected when you are fired/quit.

I would assume the US has similar programs in place. While someone may not be able to get welfare, such as a kid living with his parents, everybody is able to get UI when they are fired.

If you're paid an hourly wage, anything less than 40 hours/week is a part-time job. If you are hired as a "contractor" instead of an employee, you don't qualify, either. The maximum period that you can be eligible for UI is 26 weeks, though many people don't meet the eligibility guidelines for the maximum period, and fall off the rolls earlier. There are lots of special exemptions for agricultural businesses, too, such as no overtime pay for work over 40 hours/week.

 

[turbo]

Frankly, I don't see that. "Less government" was the mantra of the Reagan administration, which would be fine if it was true.

I voted for him based mostly on that promise. IIR, the Federal government grew by 25% during his first term, and the tax cuts for the wealthy failed to trickle down. What did trickle down is a deficit, as we regular taxpayers covered the losses of wealthy speculators who ran the S&L industry into the ditch and watched government spending exceed revenues. He didn't get my vote the second time around.

 

[Economist]

Did your prof also account for which way the numbers were changing? If the unemployment is incredibly low then it increases to 4.5, that would be a a gloomy story to run. If it's very high then it drops to 4.5, that would be a positive story.

Yes, these things were controlled for. And just for the record he is not a professor at our school, he was a guest lecturer invited by one of our faculty members.

 

[Economist]

I am incredibly sceptical of that poll, as the West tends to be moving towards less government, more so than more government. At least, that has been the global trend since Thatcher-Reagan. First with Europe, moving towards more liberal policies, since the creation of the EU. Sarkozy promises "revolutionary" change. Similarly with the years of Howard for Australia and both Chretien and Harper for Canada. Blair overall did little economically post-Thatcher.

I don't know how you measure this. Most economists tend to measure this by looking at government expenditures as a percentage of GDP. When one uses this measure you see that the US trend is moving towards more government (not less). Maybe in France that will not be the case, but it seems to early to tell.

 

[opus]

That spending is on national security - as the defense budget ballooned after 9/11. This is consistent with neoliberal ideology since the state should only be centered on its function of military defense. But otherwise, government spending in all other sectors has not changed much since Reaganomics (despite Clinton's attempts to destroy it).

So "more government" is not really "more government" if the costs of basic functions are going up (such as defense), because most use the concept of "more government" in terms of social services and securities (health care, education, etc.). Unless you want to get rid of the defense budget as well and privatize military defenses.

 

[Economist]

That spending is on national security - as the defense budget ballooned after 9/11. This is consistent with neoliberal ideology since the state should only be centered on its function of military defense. But otherwise, government spending in all other sectors has not changed much since Reaganomics (despite Clinton's attempts to destroy it).

Not true. When you look at the changes in government spending as a percentage of GDP, you don't see some huge change right around the time of the Iraq War. Rather, you see a steady increase, going from it being less than 5 - 10% around 100 years ago, up to about 25% - 30% today. In some countries (like France) government spending as a percentage of GDP is at approximatly 50%.

For example, the war costs approximately 4.5% of GDP (which is definitely not a small number) in 2007. Even social security is approximately 4.5% of GDP in 2007. Furthermore, social security spending as a percentage of GDP is projected to go up substantially over the next 50 or so years (like double).

You mentioned that the defense budget ballooned after 9/11 which is why you say that government spending as a percentage of GDP has increased. This is possible, but I am still skeptical. While I agree with you that the defense budget increased after 9/11, I imagine that other government programs might have decreased in regards to spending, so on the whole government spending is probably about the same.

Futhermore, you mentioned Clinton, who actually didn't spend that much. However, one must look at the likely reasons that this was the case. Namely that Republicans had control of Congress, and therefore, they weren't going to let Clinton spend as much as he probably would have liked. Now with George W the situation is different as Republicans had control of the Congress, so they let him get away with more. Some people even like to vote for President opposite of who controls Congress because they feel that it balances the power.

 

[russ_watters]

Unemployment percentage is one of the slipperiest, slimiest numbers you can use to gauge the health of the economy...

...And those are all common misconceptions people often complain about with unemployment data. Most are just plain wrong. Here's the actual way they calculate it (as you can see, it is more comprehensive than you believe it to be):

The ILO describes 4 different methods to calculate the unemployment rate:[5]

Labour Force Sample Surveys are the most preferred method of unemployment rate calculation since they give the most comprehensive results and enables calculation of unemployment by different group categories such as race and gender. This method is the most internationally comparable.
Official Estimates are determined by a combination of information from one or more of the other three methods. The use of this method has been declining in favor of Labour Surveys.
Social Insurance Statistics such as unemployment benefits, are computed base on the number of persons insured representing the total labour force and the number of persons who are insured that are collecting benefits. This method has been heavily criticized due to the expiration of benefits before the person finds work.
Employment Office Statistics are the least effective being that they only include a monthly tally of unemployed persons who enter employment offices. This method also includes unemployed who are not unemployed per the ILO definition.

http://en.wikipedia.org/wiki/Unemployment

But like any statistics, they need to be understood and used properly and they have limitations. That doesn't make them flawed.

We've had this discussion many, many times before, but just one specific I'll point out again:

If those 20 people cannot find work, the unemployment rate will show an up-tick until they are no longer eligible for unemployment benefits, at which time the rate will settle back to its previous level.

There are two problems with this:

First, the unemployment rate is a near steady-state condition. You used a local example, but it is calculated nationally, so no single event can affect it like that. In other words, the fact that people drop off the stat after a certain amount of time is true now, was true yesterday, and will be true tomorrow. Thus, it does not affect the usefulness of the statistic. Otherwise, it woudl trend downward over the long term, while we had a continually increasing class of unemployed and underemployed people.

Second, if there was a continually increasing long-term unemployed or underemployed class of people, they'd show up in other stats, such as income stats. And they don't.

 

[turbo]

But like any statistics, they need to be understood and used properly and they have limitations. That doesn't make them flawed.

Wiki as a primary reference? You're usually more meticulous, Russ, and I appreciate that. The raw unemployment figures (people who are applying for unemployment insurance and are eligible for such) are so poorly constrained that they are not indicative of the health of our economy. When people drop off the rolls (typically at 13 weeks, but all by 26 weeks) or never even qualify for the rolls in the first place due to the terms of their employment, they are not counted as unemployed. Maine has a huge population of unemployed people who are not counted as unemployed because they do not qualify for the benefits and are under the radar. If you took a census of people who want to work, but cannot find work, and lack the resources to move their families to where they might find work, the unemployment numbers in Maine would be off the charts. I'm sure that other states' numbers would be staggering, as well.

 

[Office_Shredder]

First, the unemployment rate is a near steady-state condition. You used a local example, but it is calculated nationally, so no single event can affect it like that. In other words, the fact that people drop off the stat after a certain amount of time is true now, was true yesterday, and will be true tomorrow. Thus, it does not affect the usefulness of the statistic. Otherwise, it woudl trend downward over the long term, while we had a continually increasing class of unemployed and underemployed people.

So the argument could me made that while in the past, people would cycle in and out of employment, today they don't and instead just drop off the map because our economy is somehow more fundamentally flawed. Of course, that's not necessarily true, but is the prime reason why the stat isn't that great... it doesn't reflect fundamental changes in the economy. For fluctuations it will reflect it, but for more permanent changes, it's not so clear

Second, if there was a continually increasing long-term unemployed or underemployed class of people, they'd show up in other stats, such as income stats. And they don't.

Which is why those statistics are perhaps better for tracking whether the economy has turned in a more fundamental manner. And when you look at them, they don't tell the same story as the low unemployment rate (for example http://neweconomist.blogs.com/new_economist/2006/06/mean_median.html )

 

[russ_watters]

Wiki as a primary reference?

Wik as an easy reference. And it is right in this case.

Besides - it's better than no reference (which is what you provided)...

When people drop off the rolls (typically at 13 weeks, but all by 26 weeks) or never even qualify for the rolls in the first place due to the terms of their employment, they are not counted as unemployed.

Even if that were true as I explained above, it wouldn't matter. If you changed the criteria and were able to measure a "true" unemployment that fluctuated between 10 and 15% (random guess for emphasis) instead of using the one we have now that fluctuates between 4 and 8%, it doesn't change anything! 10% would be seen as "good" and 15% "bad" instead of 4% good and 8% bad.

 

[russ_watters]

It didn't take too much effort to find the BLS's info on how they find unemployment rate:

Some people think that to get these figures on unemployment the Government uses the number of persons filing claims for unemployment insurance (UI) benefits under State or Federal Government programs.

That would be you...

Because unemployment insurance records relate only to persons who have applied for such benefits, and since it is impractical to actually count every unemployed person each month, the Government conducts a monthly sample survey called the Current Population Survey (CPS) to measure the extent of unemployment in the country. The CPS has been conducted in the United States every month since 1940 when it began as a Work Projects Administration project. It has been expanded and modified several times since then. As explained later, the CPS estimates, beginning in 1994, reflect the results of a major redesign of the survey.

There are about 60,000 households in the sample for this survey. The sample is selected so as to be representative of the entire population of the United States. In order to select the sample, first, the 3,141 counties and county-equivalent cities in the country are grouped into 1,973 geographic areas. The Bureau of the Census then designs and selects a sample consisting of 754 of these geographic areas to represent each State and the District of Columbia. The sample is a State-based design and reflects urban and rural areas, different types of industrial and farming areas, and the major geographic divisions of each State.

http://www.bls.gov/cps/cps_htgm.htm

Please stop repeating your false perception on this issue!

[I am glad you got me to find out for myself, though - I'd been giving you the benefit of the doubt, accepting your belief on how the information is compiled as reality even though it is wrong. Now I know for next time that there is no need to argue against the logic - just point out that the belief itself is wrong.]

 

[turbo]

Here is some raw data on unemployment in Maine. Regardless of how many people are coming off temporary or part-time work, or working several such jobs to keep fed, the numbers aren't so hot. The southern tip of the state (Portland, Biddeford, Sanford, etc) is not doing too bad, but the numbers in the rest of the state stink, and the geographic regions represented by Lewiston and Bangor don't even begin to register the shortage of employment here in Somerset county or in Washington county (probably the worst in the state).

http://data.bls.gov/cgi-bin/surveymost?la+23

 

[opus]

Not true. When you look at the changes in government spending as a percentage of GDP, you don't see some huge change right around the time of the Iraq War. Rather, you see a steady increase, going from it being less than 5 - 10% around 100 years ago, up to about 25% - 30% today. In some countries (like France) government spending as a percentage of GDP is at approximatly 50%.

Yes I do certainly believe the French government is in trouble, and one of the reasons why Sarko was voted in. Most people screaming about the budget being the end of the American economy are silly conspiracy theorists. Regardless, however, spending in government as a percent of GDP is going up not because of more social programs, but because the costs are going up. This is exactly why Canada is in a rut - they have to either increase taxes because of health care costs continually going up, or they have to get rid of the system completely. As biotechnology comes out with new and expensive drugs and toys, the government can either keep up or fall behind.

For example, the war costs approximately 4.5% of GDP (which is definitely not a small number) in 2007. Even social security is approximately 4.5% of GDP in 2007. Furthermore, social security spending as a percentage of GDP is projected to go up substantially over the next 50 or so years (like double).

Yes you are right. My point is that new things aren't being added, Americans aren't getting more social services, but just maintaining the status quo is increasingly expensive - especially for Medicare and SS, those are going to ballooooon.

You mentioned that the defense budget ballooned after 9/11 which is why you say that government spending as a percentage of GDP has increased. This is possible, but I am still skeptical. While I agree with you that the defense budget increased after 9/11, I imagine that other government programs might have decreased in regards to spending, so on the whole government spending is probably about the same.

Well I think it's true, the defense budget is growing quite fast and they had to create a whole new department after 9/11. If you look at http://www.whitehouse.gov/omb/budget/fy2008/index.html and they describe "defense discretionary" programs as taking up 20.1% of the tax. While this is true, you really have to look at the "discretionary" budget, which requires annual approval as it falls under a separate tax. So if you look here, http://www.thebudgetgraph.com/site/index.php?main_page=product_info&products_id=1 which outlines all the programs of the discretionary budget, 67% of it is going to defense. This an obvious change from pre-9/11. It's also important to note that programs in the discretionary budget historically were social safety net programs. Thus, really, we're spending on defense what we historically had spent on for social programs. Meaning our spending is still the same, but social services are down.

Futhermore, you mentioned Clinton, who actually didn't spend that much. However, one must look at the likely reasons that this was the case. Namely that Republicans had control of Congress, and therefore, they weren't going to let Clinton spend as much as he probably would have liked. Now with George W the situation is different as Republicans had control of the Congress, so they let him get away with more. Some people even like to vote for President opposite of who controls Congress because they feel that it balances the power.

Yup that is true. Not sure about the "strategic" voting though, that does seem silly.

 

[Economist]

Regardless, however, spending in government as a percent of GDP is going up not because of more social programs, but because the costs are going up.

I don't know about this. Costs of virtually everything in the Economy have went down in real dollars over the years. In fact, this is the reason that Nations have growth rates, because they find cheapter ways of doing things. This is the definition of economic progress, and is the essence of economics.

Now if government expenses are going up, while goods and services in the private sector are generally going down, then this is even more reason why governments can't be realied upon to undertake many actions. This gives me even less faith (which is pretty much non-existent anyway) in government.

Let's take Social Security. You're saying the costs have increased, which is true due to the baby boomers. However, you should ask yourself why baby boomers have placed pretty much no stress or worry on private retirement companies.

 

[opus]

Wait a minute, are you refuting against hard solid numbers that costs have gone up in medicine and social security? You're not that insane of a sceptic, are you?

And private retirement companies have actuaries?

 

[ShawnD]

Let's take Social Security. You're saying the costs have increased, which is true due to the baby boomers. However, you should ask yourself why baby boomers have placed pretty much no stress or worry on private retirement companies.

Actually the same thing does happen in the private sector. When somebody chooses to buy into a mutual fund, they're told right away that the MER is 2%, meaning 2% of your entire investment is taken every year regardless of performance. When you factor in compounding over something like 40 years, that's a fairly significant chunk of cash that has gone missing from your investment. Then of course there are companies Sprint or Nissan where the pension comes up short time and time again. Then there are the worst of the worst, companies like Enron that completely lose all of their investors' money.

The private sector is no better than the government when it comes to screwing up, but they are held accountable when such a screwup happens. Several people went to jail over Enron, but nobody will ever go to jail for pissing away social security.

 

[Economist]

Wait a minute, are you refuting against hard solid numbers that costs have gone up in medicine and social security? You're not that insane of a sceptic, are you?

I don't know that it's correct to say that costs went up. People may have spent more, but the same things probably cost less. In other words, they are spending more, but also for better quality stuff. For example, you were talking about fancy new macinary as a cost going up, but I don't think that's precise, as it makes it sound like you're paying more for the same thing. It's like saying that the cost of VCRs went up because DVD players were more expensive than VCRs when they first came out. Anybody would quickly realize that it's a misleading statement because you are comparing apples to oranges.

My bigger point though was that the costs of medicare and social security have probably went up for very different reasons than when the cost of something in the private sector goes up. For example, social security is not that great of a system in my opinion, and it's filled with problems, which is what makes the costs go up. The failures of the system is what makes it increasingly more costly.

 

[Economist]

Actually the same thing does happen in the private sector. When somebody chooses to buy into a mutual fund, they're told right away that the MER is 2%, meaning 2% of your entire investment is taken every year regardless of performance. When you factor in compounding over something like 40 years, that's a fairly significant chunk of cash that has gone missing from your investment. Then of course there are companies Sprint or Nissan where the pension comes up short time and time again. Then there are the worst of the worst, companies like Enron that completely lose all of their investors' money.

The private sector is no better than the government when it comes to screwing up, but they are held accountable when such a screwup happens. Several people went to jail over Enron, but nobody will ever go to jail for pissing away social security.

I disagree with your analysis.

Here's a Thomas Sowell article on the topic: http://www.jewishworldreview.com/cols/sowell091500.asp

The Social Security money that comes into Washington from our paychecks gets spent, not invested, despite creative accounting to the contrary. When the politicians spend the money, they give the Social Security "trust fund" I.O.U.'s in the form of government bonds. But this paper transaction changes nothing, except for creating the illusion that something is being saved when it isn't. You can't spend money and save it at the same time -- no matter how creative your accounting may be.

Future taxpayers are going to have to pay off the government bonds that have been issued to the Social Security system in exchange for the money that was spent. If no such bonds had ever been issued when that money was spent, we would still have to depend on future taxpayers to come up with the money for the baby boomers' retirement. The bonds in the "trust fund" change nothing economically.

What this accounting sleight-of-hand does politically is to confuse the public and maintain the illusion that your Social Security "contributions" are being put aside for your pension when you retire. That would be true if you were investing in the private sector, but not in the government.

The law requires private insurance or annuities to be backed up by enough assets to cover their liabilities. Private insurance companies can't just promise people anything and leave it to someone else in the future to figure out how to pay them off -- or how to evade the responsibility for paying them off. Only the government can do that.

There is a reason why you don't hear the same hysteria from private financial institutions that you hear from the government about how hard it will be to pay the baby boomers' pensions when they retire. Private pensions are financed by investing the money that comes in, so that the assets will be there when retirement time comes.

 

[ShawnD]

The law requires private insurance or annuities to be backed up by enough assets to cover their liabilities. Private insurance companies can't just promise people anything and leave it to someone else in the future to figure out how to pay them off -- or how to evade the responsibility for paying them off. Only the government can do that.

Touche.