Can Cutting Military Spending and Subsidies Solve the US Deficit Crisis?

[turbo]

IMO, the only way to effectively cut our deficit is to cut spending ASAP and to keep all future spending on-budget and transparent.

We can get rid of a lot of spending with a few moves. First, close at least 600 foreign military bases. They are not necessary to the security of our country. Foreign bases are a drain on our treasury and a direct monetary transfer to the countries that host those bases. Bring home the military personnel, administrators, and their families. We will all be better off.

Next, drop a couple of carrier groups. Our Navy does not need to be able to project aggression all over the world. No other country has this force.

Next, drop the support for ethanol, and all other price-supports for agricultural programs that steer so many millions of dollars to ADM, Monsanto, etc, while making basic foods more expensive for US citizens.

This is not an inclusive list. I hope others can chime in.

The GOP fantasy that we must attack deficits by cutting Medicare, Medicaid, and Social Security, is just that. A fantasy that cannot work while keeping our most vulnerable citizens covered by at least a minimum social net.

 

[Dale]

I like your suggestions, but if you want to cut spending in order to fix the deficit then you must at some point address our out of control entitlement spending also. They are the biggest chunk of the budget.

How about instead of cutting anything we freeze everything, entitlements included. Let our GDP grow until the current level of spending is sustainable, then tie growth of spending to growth of GDP.

 

[ParticleGrl]

The only way to fix the short-term deficit is to get people back to work. Most of the huge increase in the deficit in the last year of Bush's administration leading into the Obama administration are safety net measures like unemployment insurance. Getting people back to work will shift some burden off medicade,etc.

The exploding "entitlement spending" is really exploding health care cost, and its mostly a long-term-outlook problem, not a short term problem. I think the only sane approach is to wait and see what the new health care law does with growth of costs. Its a complicated piece of legislature, so let's see what effect it has.

How about instead of cutting anything we freeze everything, entitlements included. Let our GDP grow until the current level of spending is sustainable, then tie growth of spending to growth of GDP.

Senior citizens would prefer not to lose their health care. As the population ages, we'd be denying social security benefits and medicare to new seniors. Further, if health-care costs grow faster than GDP (and they do, even in the private sector), then there is no way to tie growth of spending to growth of GDP until healthcare becomes near 100% of GDP.

 

[Dale]

If we froze spending at current levels then no one would lose anything.

 

[loseyourname]

Eh, I don't know man. Those three programs are more than half the federal budget. I can definitely think of a crap-ton of cuts that can be made within my own Department of the Army without doing what I personally think would be serious harm, but as bad as defense is, those FICA entitlement programs are already bigger and also growing much faster, not to mention built on a model that can't work when the size of the retired population approaches the same size as that of the labor force.

I definitely think we can get rid of a good deal of agricultural subsidies, higher education subsidies (it's getting completely absurd how quickly higher education costs are growing and it needs to stop), and some overseas projection of force measures (though I think closing down every single overseas military post is severely overdoing it when at least some serve a clear and obvious strategic purpose). Government procurement costs are severely out of hand and should be reigned in. As someone who has almost always resided in a relatively wealthy state, I'm a little sick of the poverty assistance programs that systematically transfer money from places like California to places like Mississippi, and would like to see that handled more at the state level. Administrative costs generally can be cut in pretty much every Executive Branch agency and department as there are just a crap ton of middle management bureaucrats that earn a decent living doing basically nothing through no fault of their own simply because the bureaucracy is so rigid that rules rule the day and middle managers exercise almost no discretion or power anyway. Nobody needs to earn six figures to play with a rubber stamp all day, and honestly, that includes a lot of my field grade peers in the military officer corps and almost every senior NCO over the grade of E-7 with the exception of good First Sergeants, and basically every Colonel and General that doesn't hold a command position.

That only puts a small dent in the budget, though. The big three have to take some of the hit.

 

[Evo]

I think all politicians are grossly over paid. There are people that are overpaid that don't even have a reason to be on the payroll.

I think if we cut all political pay by 50%, most would still be overpaid, but we'd see more people run that really want to do good.

There is no reason for politicians to make this much money. Not to mention those that gain political positions only to benefit themselves in business.

 

[Vanadium 50]

The GOP fantasy that we must attack deficits by cutting Medicare, Medicaid, and Social Security, is just that. A fantasy that cannot work while keeping our most vulnerable citizens covered by at least a minimum social net.

First, I would cut out the entire discretionary budget. Defense, State, HHS, DHS, NASA, everything. National Parks. CDC. FAA. If it's in the discretionary budget, it goes. That saves $1.3T.

Then I would default on the debt. That saves another $0.2T.

Now I still have to cut $100B, and all that is left are entitlements: Medicare, Medicaid, and Social Security.

 

[Pengwuino]

First, I would cut out the entire discretionary budget. Defense, State, HHS, DHS, NASA, everything. National Parks. CDC. FAA. If it's in the discretionary budget, it goes. That saves $1.3T.

Then I would default on the debt. That saves another $0.2T.

Now I still have to cut $100B, and all that is left are entitlements: Medicare, Medicaid, and Social Security.

Sounds like a plan!

 

[loseyourname]

And honestly, the very first thing I would do is means-test Medicare and Social Security. You paid into it your whole life? Oh well. I will too and I'm perfectly okay with never seeing any of it back because I don't expect I will ever need to. It was always meant to be a safety net, not a retirement plan. If you're living comfortably at the age of 70 and can afford to be privately insured, you don't need it. Warren Buffett doesn't need to be collecting Social Security.

 

[russ_watters]

Cut entitlements.

The GOP fantasy that we must attack deficits by cutting Medicare, Medicaid, and Social Security, is just that. A fantasy that cannot work while keeping our most vulnerable citizens covered by at least a minimum social net.

Since these are by far the largest expenditures, they are necessarily those that require the deepest cuts. Even if we cut out all non "mandatory", "discretionary" (I hate those terms: they are made to be biased towards "entitlements" [I hate that word too]) spending, we'd still have a deficit. And that's the classic, basic functions of government we're talking about.

 

[russ_watters]

First, I would cut out the entire discretionary budget. Defense, State, HHS, DHS, NASA, everything. National Parks. CDC. FAA. If it's in the discretionary budget, it goes. That saves $1.3T.

Hey, don't forget Justice, Education, HUD and Agriculture! We definitely don't need a federal court system, student assistance, federal housing programs (well that one I really do think should go...) or to monitor the sanitation of our poultry farms!

Bob brought up Obama's plans/projections a while back. A refresher:

The analysis, by the bipartisan Committee for a Responsible Federal Budget, found that the plan Obama unveiled in a speech last week would require the nation to borrow another $7 trillion during the next decade, compared with about $5.5 trillion under the House Republican budget and about $5.3 trillion under the recommendations offered in December by Obama’s fiscal commission.

http://www.washingtonpost.com/busin...se-gop-targets/2011/04/21/AFHjzyHE_story.html

Keeping in the back of our minds that such plans virtually always fall short, Obama has offered us only a best case scenario of $7 trillion more debt over the next decade. This is simply unacceptable and the only we could possibly avoid most of that is to cut entitlements.

 

[ParticleGrl]

If we froze spending at current levels then no one would lose anything.

Of course they would-new people enter into medicare everyday. You either deny new entry or force others out. Either way, you are changing medicare.

First, I would cut out the entire discretionary budget. Defense, State, HHS, DHS, NASA, everything. National Parks. CDC. FAA. If it's in the discretionary budget, it goes. That saves $1.3T.

1.3 trillion is way more than enough to close the deficit once GDP returns to trend (i.e. the long term deficit issue), which is something like 300-400 billion.

The short deficit will close back to a few hundred billion as people go back to work and start paying taxes again (and no long need unemployment). The easiest way to knock a trillion off the deficit is just to wait- after all, the government has no issue buying debt (treasuries yields are incredibly low right now), so the short term situation isn't that urgent (or at least, the market doesn't think its urgent).

Then I would default on the debt. That saves another $0.2T.

I'm not sure destroying the safe-investment benchmark and creating a flight from treasuries into who-knows-what-else is a great idea. Keep in mind that much of the demand shock that really hurt in 2008 was caused in part by everyone wanting treasuries. I'm not sure anyone really knows what will happen if the US defaults, but I suspect a flight away from treasuries will have huge repercussions. Remember when Russia defaulted, LTCM collapsed and the fed had to organize a bailout to prop the banking system up? I imagine a US default would be worse.

Keeping in the back of our minds that such plans virtually always fall short, Obama has offered us only a best case scenario of $7 trillion more debt over the next decade. This is simply unacceptable and the only we could possibly avoid most of that is to cut entitlements.

To put things in perspective, keep in mind that Bush added something like $4.2 trillion to the deficit in the 8 budgets he presided over, and he started from a surplus.

Obama inherited the worst economy since the great depression. Remember, that Obama's plan only produces 1.5 trillion more spending than the Ryan budget, which slashes spending to the bone. Basically- in the short term, we are going to have to borrow some more money- because revenue is low right now. The best thing to do is wait- revenue will come back, and the deficit will shrink.

Further, its worth waiting until the healthcare law kicks in and seeing how that changes the growth in healthcare. The budget problem is really a healthcare problem- remember that.

 

[russ_watters]

Of course they would-new people enter into medicare everyday. You either deny new entry or force others out.

You don't need to force people out - they leave on their own. Just freezing the benefits without changing who is eligible is what was put on the table.

Either way, you are changing medicare.

Not changing the structure, just freezing the benefit levels.

1.3 trillion is way more than enough to close the deficit once GDP returns to trend (i.e. the long term deficit issue), which is something like 200-300 billion.

I think you missed the sarcasm in that post. The so-called "discretionary spending" or "non-mandatory" spending is, in fact, the things that make up the core functions of government. You can't just eliminate them without closing-up and abandoning Washington, DC.

The short deficit will close back to a few hundred billion as people go back to work and start paying taxes again (and no long need unemployment).

Projections based on that are not favorable. "A few hundred billion" is a decade away.

The easiest way to knock a trillion off the deficit is just to wait- after all, the government has no issue buying debt (treasuries yields are incredibly low right now), so the short term situation isn't that urgent (or at least, the market doesn't think its urgent).

I fear that's exactly what is going to be done. And so, a decade from now, our debt will be another $7 trillion higher than it is today. It's already high enough that interest on it affects our GDP by a noticeable amount.

 

[Pengwuino]

And honestly, the very first thing I would do is means-test Medicare and Social Security. You paid into it your whole life? Oh well. I will too and I'm perfectly okay with never seeing any of it back because I don't expect I will ever need to. It was always meant to be a safety net, not a retirement plan. If you're living comfortably at the age of 70 and can afford to be privately insured, you don't need it. Warren Buffett doesn't need to be collecting Social Security.

Social security as implemented is almost a sign of criminal negligence. Anyone who doesn't support a massive overhaul of it is just... odd. The way I see it, you're basically paying 15% of your wages (employer contributions included) for 30-40 years hoping to support yourself for on average 20 years. I say this knowing full well that a horrifying % of retirees have little to no savings, so social security is supporting their lifestyles. Large fractions of retirees need to be taken off social security with means-testing as you have stated to help support the people who didn't save up or lost their savings or for whatever reason, negligent or not, don't have savings to support themselves.

Politicians and all Americans need to get real, this system was started imagining something like 10 workers per beneficiary. We're down to 2? 1.something? This isn't going to work anymore.

 

[ParticleGrl]

You don't need to force people out - they leave on their own. Just freezing the benefits without changing who is eligible is what was put on the table.

Our population is aging. We have more people turning 65 than passing away. Thats a big part of why the cost of medicare is growing. You can't freeze spending levels at what they are today and keep everyone over 65 on medicare without reducing benefits.

Politicians and all Americans need to get real, this system was started imagining something like 10 workers per beneficiary. We're down to 2? 1.something? This isn't going to work anymore.

The system HAS been redesigned. The reason Reagan raised FICA in the 80s was to deal with the dwindling worker/beneficiary ratio and "fix social security". The program has actually run a surplus to deal with the aging population. A chunk of the US deficit we actually owe to ourselves (the standard budget owes the social security trust). If we truly believe that social security is a separate retirement program and not a (regressive) extra income tax, then social security is close to solvent. We've been taking more in in social security taxes than we've spending on beneficiaries since the 80s to prepare for the aging boomers. The surplus is invested in treasuries (thats right, social security loaned money to the government) Simple small changes can keep the system solvent as long as we want.

Of course, if we think of the social security trust fund as an illusion, then this no longer holds true. But it also means that Reagan cut income taxes for the wealthy and raised them on the poor and middle class, and people would have to stop saying that 40% of Americans pay no income tax (that number would drop to about 5%)

Projections based on that are not favorable. "A few hundred billion" is a decade away.

Then we need to be doing more to get people back to work. The faster we get people back to work, the faster the deficit shrinks.

 

[Pengwuino]

The short deficit will close back to a few hundred billion as people go back to work and start paying taxes again (and no long need unemployment). The easiest way to knock a trillion off the deficit is just to wait- after all, the government has no issue buying debt (treasuries yields are incredibly low right now), so the short term situation isn't that urgent (or at least, the market doesn't think its urgent).

Recall what caused the housing collapse. Money was easy to get, but that had absolutely no bearing on the reality of how the debt affected the person who received the money. For example, if I had $200k in assets, banks would fall all over themselves to give me $100k loans because they know worse case scenario, I can sell off everything to pay them back. Being given money isn't so much a sign that someone is good with money or manages their life well, it's a sign that worse comes to worse, the person will ruin themselves simply to pay back their debt.

Same idea with the government debt. Investors are willing to buy treasuries because they know it will be paid off. They don't care how we would do it, they don't care if it means shutting down the US Postal Service, closing 500 military bases, selling off our national parks, or print up money ferociously; all that matters is that they know they'll get their money back (although that last one they wouldn't like as much). Investors are under no obligation to care how the debt affects the average American.

 

[russ_watters]

Our population is aging. We have more people turning 65 than passing away. Thats a big part of why the cost of medicare is growing. You can't freeze spending levels at what they are today and keep everyone over 65 on medicare without reducing benefits.

Clarification: While I favor cutting the benefits, that wasn't we've been discussing...

Increases in people getting benefits and increases in benefits themselves are factored into projections like Obama's $7 trillion. Even just freezing has an effect. In 2009, $686 billion was spent on SS. As a hypothetical, if cost of living adjustments average 3% for the next decade, eliminating them would save $236 billion even without considering the savings from not raising the benefits for new people.

[edit] Medicare is more difficult because it is more difficult to quantify the increases in benefits. We tend to see it as insurance with a certain coverage, but the problem is that it isn't just getting more expensive, people get more benefits for the higher costs (though it isn't 1:1). People are living longer, collecting longer, and spending more for better care. Freezing benefits would mean stopping increasing the quantity/quality of care people are getting or getting them to pay out of pocket for those increases.

 

[ParticleGrl]

Recall what caused the housing collapse. Money was easy to get, but that had absolutely no bearing on the reality of how the debt affected the person who received the money. For example, if I had $200k in assets, banks would fall all over themselves to give me $100k loans because they know worse case scenario, I can sell off everything to pay them back...

Thats not the right story- people were given money because it was thought that houses could only go up, so not many people would default. Further, the rates on the loan were actually quite high, but hidden by the fact that people could pay interest only (or in some cases, less than interest) for a period. The problem with the loans was fundamentally that the rates were high. When house prices were going up, it was thought the accumulation of value in the house would let the person grow there way out from under the debt.

If the rates had been very low, the dynamics of the market would have been very different (why securitize a bunch of loans with no serious yield?) If the rates had been low, then the slight decline in the growth of housing prices wouldn't have been a problem. As it was, a slight decline in the rate of growht, and suddenly you can't get out from under your debt, so you default. But your neighbor did the same thing. Now two houses are being sold, now four, etc. Suddenly its a fire sale, and house prices drop further, which means people with slightly better loans are now defaulting...etc... Again, not a problem if everyone had very low rates.

Same idea with the government debt...

No, its very, very different.

The debt is only a problem in that you have to pay interest on it. If you can borrow money at 0% real interest you should (hell, if you can get 0% nominal interest, you can wait and the debt will inflate away). Money today is always worth more than money tomorrow.

The fact that investors are willing to buy debt AT VERY LOW RATES means that 1. the market doesn't think the US will have to rapidly inflate to pay the loan. 2. the market doesn't think the government will default 3. the cost of debt to the US is very low.

Right now, the government can borrow cheaply. The real rate on 5 year treasuries is actually probably a tiny bit negative right now, people want safe investments so badly. In 2008, even the short term real rates (t bills of 3 months) were temporarily negative- people were loaning the government money at a guaranteed real loss!

That means even though we are borrowing a fair amount, rates are incredibly low. As long as rates stay low, GDP growth will let us grow our way out of debt.

 

[loseyourname]

The system HAS been redesigned. The reason Reagan raised FICA in the 80s was to deal with the dwindling worker/beneficiary ratio and "fix social security". The program has actually run a surplus to deal with the aging population. A chunk of the US deficit we actually owe to ourselves (the standard budget owes the social security trust). If we truly believe that social security is a separate retirement program and not a (regressive) extra income tax, then social security is close to solvent. We've been taking more in in social security taxes than we've spending on beneficiaries since the 80s to prepare for the aging boomers. The surplus is invested in treasuries (thats right, social security loaned money to the government) Simple small changes can keep the system solvent as long as we want.

Of course, if we think of the social security trust fund as an illusion, then this no longer holds true. But it also means that Reagan cut income taxes for the wealthy and raised them on the poor and middle class, and people would have to stop saying that 40% of Americans pay no income tax (that number would drop to about 5%).

Social Security will not stay solvent for more than a few decades given current trends unless the rate is raised or the cap on taxable income is raised. More to the point, Medicare might not remain solvent past this. I get that it's a separate component to the budget funded by its own dedicated tax, not the general fund, but means testing it, or finding whatever other means to make spending cuts to these programs, allows for the raising of regular personal income taxes without having any impact on the after-tax income received by workers. You can transfer money from these programs currently eating up half the federal budget so that other programs do not need to be so severely cut or even just to avoid having to raise other taxes. Hell, it's conceivable we could actually reduce aggregate tax burden while still reducing the operating deficit simply by shifting collections from FICA to PIT and means-testing entitlements.

These programs are social insurance programs, which made a heck of a lot of sense during the depression when banks were failing and people were having their farms repossessed and seeing their savings completely wiped out. Something like that has happened again to a lot of people approaching retirement, and the programs make perfect sense for people like that, who simply don't have the labor years left to rebuild a nest egg wiped out by a combo of unfortunate circumstances and bad timing. That's fine. But it's becoming a primary retirement program for too many people and also a way to subsidize gigantic cost run-ups in the healthcare sector with the ridiculous growth we've seen in end-of-life health expenses, trying to live one more damn month at hundreds of thousands of dollars a day. That doesn't need to be socially funded.

And honestly, I think your views on the debt are more level-headed than most because it's true that borrowing at such low rates, including negative real rates on those TIPS, isn't going to break the Treasury's back, but we've hit the point of double-digit percentages of the budget being devoted to debt service. That gets to be oppressive, and most of it is not going to the SSA Trust Fund. The largest chunk goes to the Fed, which pays a dividend to private banks, which I suppose is great for you if you own a bank, but it doesn't seem to be doing much for demand-deposit account holders. Enough of it goes to overseas investors that that percentage of the budget being devoted to debt service gets to be a drain on GDP, in addition to being oppressive to the flexibility of the budget. We're paying hundreds of billions a year to other countries so that we don't have to deal with our structural deficit now and can kick it down the road. Is that worth it? Do we get enough of a social return from the deficit spending to justify that?

You have to remember also that the low interest rates are not just an artifact of the market's evaluation of U.S. T-bond risk; they're an artifact of extremely large-scale market manipulation by the Fed, which subsequently devalues the dollar, an implicit tax on anyone that owns dollars, which presumably is all of us in the U.S. Explicit interest payments are not the only cost of all this debt.

If you want to extend your example of personal borrowing, look at is this way. If you could borrow $100,000 at 0% interest over 10 years, would you? Your previous post indicated this is always a good idea, but it entirely depends on what you do with the money. If you invest it at 1%, then it's always a good idea. But let's say you use it to pay for a hip replacement for your grandmother, who then dies two weeks later anyway. You make $50,000 a year after taxes. Well, for the next ten years, you now make $40,000 a year after taxes. Did you see enough of a social return from that spending to make it worth the lack of financial return and subsequent burden on your ability to spend in the future?

 

[Dale]

You either deny new entry or force others out.

yes, I am specifically talking about denying entry. Nobody loses any benefit they are getting, but we stop adding new people.

 

[Dale]

As long as rates stay low, GDP growth will let us grow our way out of debt.

I agree with this point. This is why I think that we should tie increases in spending to GDP growth. As you suggested elsewhere if we get people back to work quickly then this freeze would be brief.

 

[turbo]

Social Security will not stay solvent for more than a few decades given current trends unless the rate is raised or the cap on taxable income is raised.

Exactly! The GOP has been very vocal about cutting "entitlements", but have been silent (unless I'm missing some rogue element in the party) about raising the cap on taxable income. It is possible to keep SS solvent in the long-term without cutting benefits. And the changes don't have to be very large (2.1% increase in payroll taxes).

http://www.ssa.gov/oact/solvency/provisions/tables/table_run422.html

 

[Al68]

I have a plan:

Lets just continue to reject all attempts at entitlement reform and continue to increase government spending year after year while calling the increases "difficult cuts" or "draconian slashes".

Then, after the federal government collapses like the USSR, which won't be long, we can re-establish a federal government with the same exact constitution, except for a repeal of the 16th amendment and an amendment clarifying the already existing limits on federal power in a way that even a complete moron can understand.

As far as the promises of power hungry politicians to plunder from makers to give to takers, that's their problem. My children and grandchildren made no such promise, so are under no obligation to keep it. They have every right to live in peace and liberty instead.

 

[ParticleGrl]

Social Security will not stay solvent for more than a few decades given current trends unless the rate is raised or the cap on taxable income is raised. More to the point, Medicare might not remain solvent past this.

I think the only sensible thing to do with medicare is wait and see what happens as the new healthcare bill goes into full effect. Its a complicated piece of legislation, let's see what happens with medical testing. What if the focus on empirically backed methods and electronic medical records has huge positive effects on long term cost growth? What if its a complete failure? Using past data to make plans is silly, because we know the environment is about to change.

Social security, as you pointed out, is solvent for a few decades. Given that government's ability to long term plan is essentially limited to 8ish years, its hard to paint it as a crisis this administration needs to deal with.

they're an artifact of extremely large-scale market manipulation by the Fed, which subsequently devalues the dollar, an implicit tax on anyone that owns dollars, which presumably is all of us in the U.S. Explicit interest payments are not the only cost of all this debt.

It depends on what the fed does after purchasing treasuries that determines what is happening with the strength of the dollar. Right now, the fed is essentially 'printing money' but we aren't seeing a big uptick of core inflation. If we tighten the supply as the economy comes back, we don't have to see a weakened dollar. Even still, a weaker dollar would help US manufacturing.

Also, the ability of the fed to manipulate treasuries is limited- people still have to be willing to buy them, at the end of the day.

I agree with this point. This is why I think that we should tie increases in spending to GDP growth. As you suggested elsewhere if we get people back to work quickly then this freeze would be brief.

The issue is that you might have to spend money to get people back to work. If you tie spending to a percentage of the GDP, then you have a problem- everytime you have a depression, the government cuts back spending, which puts government workers out of work and limits demand for government contractors, which in turn causes a deeper depression.

Then, after the federal government collapses like the USSR, which won't be long

Not according to the free market. Most people who actually have money riding on it believe the US is completely solvent and are willing to loan it money at extremely low real rates.

 

[Dale]

If you tie spending to a percentage of the GDP, then you have a problem- everytime you have a depression, the government cuts back spending, which puts government workers out of work and limits demand for government contractors, which in turn causes a deeper depression.

Sorry if I wasn't clear. I was suggesting to tie spending increases to GDP, not tie spending. This scenario would not happen. During recessions we would deficit spend at pre-recession levels.

 

[ParticleGrl]

I was suggesting to tie spending increases to GDP, not spending. This scenario would not happen. During recessions we would deficit spend at pre-recession levels.

During a recession, more people use the safety net. After all, its what its there for. People lean on unemployment and medicaid. Spending to these programs will increase, which (if the spending level is set) crowds out other programs.

 

[Al68]

Not according to the free market. Most people who actually have money riding on it believe the US is completely solvent and are willing to loan it money at extremely low real rates.

Now that's using the words "free market" rather loosely! Regardless, the federal government is still able to borrow because many creditors believe it will ultimately choose to control spending, not because they think it doesn't need to. And I'm sure you're aware that we are starting to see signs already of a lack of confidence, such as S & P's warning. What does it say that good private companies, that have no source of revenue other than by getting people to buy their product, could have a better credit rating than the U.S. government?

Are you suggesting that the federal government will remain solvent even if it were to continue its current path unabated, as I described in the post you were responding to?

 

[WhoWee]

I think the only sensible thing to do with medicare is wait and see what happens as the new healthcare bill goes into full effect. Its a complicated piece of legislation, let's see what happens with medical testing. What if the focus on empirically backed methods and electronic medical records has huge positive effects on long term cost growth? What if its a complete failure? Using past data to make plans is silly, because we know the environment is about to change.

Social security, as you pointed out, is solvent for a few decades. Given that government's ability to long term plan is essentially limited to 8ish years, its hard to paint it as a crisis this administration needs to deal with.

The insurance term to describe this course of action is "speculative risk" - maybe we can bundle up the risk into a derivatives package deal - sell it to OPEC members and China - on the "if come"?

 

[Al68]

Social Security will not stay solvent for more than a few decades given current trends unless the rate is raised or the cap on taxable income is raised.

That is simply not true. S.S. can be made solvent by very modest tweaks in the eligibility age. In fact, if the eligibility age were adjusted even moderately for increased life expectancy, payroll taxes could be cut in half, and the system remain solvent.

But the ultimate goal should be to not only privatize it, but make it voluntary. Forcing people to participate in a Ponzi scheme is not a legitimate permanent solution for a free society.

 

[Al68]

I think the only sensible thing to do with medicare is wait and see what happens as the new healthcare bill goes into full effect.

You mean if it goes into full effect? We do have an election between now and then, as well as a court case.

Of course it will never go into full effect as intended by its advocates. Many people like me will never participate in it, regardless of the penalty. Many of us (don't know how many) have no intention of buying a product we don't want, simply because government will in turn prohibit us from buying the medical insurance we do need and want, in addition to the tax penalty.

 

[loseyourname]

That is simply not true. S.S. can be made solvent by very modest tweaks in the eligibility age. In fact, if the eligibility age were adjusted even moderately for increased life expectancy, payroll taxes could be cut in half, and the system remain solvent.

But the ultimate goal should be to not only privatize it, but make it voluntary. Forcing people to participate in a Ponzi scheme is not a legitimate permanent solution for a free society.

Yeah, I didn't mean those are the only ways. Heck, I thought it was pretty clear I wasn't even advocating that. I was advocating means-testing. I just meant that Social Security with the current payout levels and retirement age and everything else will not remain solvent past two or three decades at current FICA rates and caps.

 

[loseyourname]

Also, the ability of the fed to manipulate treasuries is limited- people still have to be willing to buy them, at the end of the day.

I wouldn't say their ability is very limited at all. The Fed is the entity doing the purchasing, so no, nobody else has to be willing to buy them until the Fed decides to reverse ship and dump these back on the market. But then it's a bid process and people can buy them as cheaply as the real market allows. In principle, the Fed can buy every single outstanding Treasury issue if it wanted, and it could buy at face value and charge 0% interest if that was the goal. Hell, the prevailing T-bill rate went from like 5% to 0.25% in a matter of months based solely on Fed open market operations. That's not a very limited scope of ability to manipulate at all.

Don't get me wrong. I think the US deserves a low interest rate. We're not risky like Greece or Ireland or something like that. We still have the world's largest GDP, we're top ten in GDP per capita, and bottom two I believe among the OECD in aggregate tax burden, so there is plenty of room for us to pay off debt, even a lot more than we currently carry. US T-bonds are still the safest instrument in existence. But is it really that much safer than Australia, for instance, which still yields around 5%?

 

[Al68]

Don't get me wrong. I think the US deserves a low interest rate. We're not risky like Greece or Ireland or something like that. We still have the world's largest GDP, we're top ten in GDP per capita, and bottom two I believe among the OECD in aggregate tax burden, so there is plenty of room for us to pay off debt, even a lot more than we currently carry.

I would disagree with that for a few reasons:

First, we can't just compare the U.S. GDP to other countries that simply, in many other countries, a larger percentage of GDP is controlled by government. Other countries' citizens are also more "sheep-like" about being taxed.

Second, as was demonstrated in another recent thread, the federal government can only realistically expect to actually collect about 19.5% of GDP regardless of tax rates, short of drastic changes. A better comparison would be to compare federal debt to federal revenues, not GDP.

Third, what is referred to as the federal debt is only the debt of the federal government, not the entire debt of the nation. We have state government and local government debt, as well as a lot of private debt to go along with that large private GDP.

Finally, our debt as it is isn't going to cause our demise, it's the path of ever increasing debt that will, if we stay on that path. Servicing it costs us more and more each year, and will spiral out of control when interest rates rise in response.

 

[WhoWee]

I don't think any attempts to cut costs will succeed until we have a major change in attitude and mentality in this country. We used to be the land of opportunity - where all you needed was a dream and a strong work ethic to succeed. Now - IMO - we have a welfare state mentality - "how do I get mine" seems to be the mantra?

There was a lottery winner in the news last week defending his right to continue to collect food stamps.
http://www.msnbc.msn.com/id/4309195...illion-lottery-winner-still-gets-food-stamps/

When do we say ENOUGH?

 

[ParticleGrl]

I wouldn't say their ability is very limited at all. The Fed is the entity doing the purchasing, so no, nobody else has to be willing to buy them until the Fed decides to reverse ship and dump these back on the market.

The fed isn't the only entity buying treasuries, which is my point. The market is buying hundreds of billions of very low interest treasuries.

Hell, the prevailing T-bill rate went from like 5% to 0.25% in a matter of months based solely on Fed open market operations.

Its not based solely on the fed's operations. The big drops in 2008 were probably due to an investor flight to quality when every other market became incredibly illiquid, and that was before quantitative easing. It is this liquidity preference that (according to standard macroeconomic theory) is allowing the fed to print money without touching off core inflation.

We used to be the land of opportunity - where all you needed was a dream and a strong work ethic to succeed. Now - IMO - we have a welfare state mentality - "how do I get mine" seems to be the mantra?

Lets try figuring this out with some actual data. Who has the welfare state mentality? Who is saying "how do I get mine?" How do we define opportunity? Instead of having opinions, let's explore the question rationally. Has the welfare state expanded or contracted in the last 30 years? Have opportunities increased or decreased?