Risk and Diversification

 Posted by  Fiscal Issues, Healthcare, Issues, Social Security and Welfare  6 Responses »
Mar 202007
 

When you invest, as any broker will tell you, you want to diversify your holdings. You want to own a variety of stocks in a variety of firms, selling a variety of products, and you also want to own bonds in a variety of different markets. You want to invest some of your money in real estate, some in precious metals, some in housing, some in foreign markets, some in short-term investments, some in long-term investments, etc. The more investments you have, the more likely that your portfolio will survive an economic downturn. But, of course, if you are only investing $10,000, you can’t spread that money very far. So you join in with other hundreds or thousands of other people in different funds which pool all that money together and invest in a variety of things for you all. And the more people involved in any particular fund, the more that fund will be able to diversify its holdings, and the less reliant you are on any one person withdrawing from that fund at an inconvenient time. In other words, the ideal fund would have millions of people putting money into it, and then that fund would invest in millions of different things all over the world.

Insurance is much the same way. Take health insurance, for instance. People, on average, are reasonably healthy. They get a test done for something or another every year or two, maybe break a bone every decade, and that’s about it. There are exceptions, of course. The extremely young and the very old are both more likely to use health care resources, and then there are a few people with extremely serious chronic conditions (Type I diabetes, Crohn’s Disease, kidney failure, to name a few) that require absurd amounts of health care. But because we’ll all get old eventually, most of us will have children eventually, and any one of us could be diagnosed with a chronic condition at any time, we all have incentives to not exclude high risk people from health insurance completely. And so, again, you want to pool your risk; you want to get as many people as possible paying into your health insurance pot, so that way when one person has a child, or develops Crohn’s Disease, or goes into a nursing care facility, then there is plenty of money in that pot to cover them. After all, we all pay into that pool as if we were an average person, and the average person is reasonably healthy.

All of that is pretty basic micro-economic theory. And yet we’ve set up fundamental systems which fly in the face of that theory.

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Immigration and The American Economy

 Posted by  Debt and Deficit, Fiscal Issues, Immigration, Latin America, Poverty, Social Security and Welfare, U.S. Politics  2 Responses »
Nov 282006
 

The biggest mistake we can make, with regards to immigration, is to underestimate the complexity of the American economy.

Pro-immigration forces like to say that immigrants are doing jobs that Americans refuse to do. At face value, that makes sense. Most Americans would shun the idea of becoming migrant farm workers. After all, the hours are bad, you have to either spend much of the year away from home, or uproot your family every six months, the labor is back-breaking, etc. Who would want that job? Except that there are plenty of Americans who are willing to take construction jobs, trucking jobs, etc. which require long hours away from home, often doing physically exhausting or mind-numbing labor. The issue isn’t “Americans won’t take the job”. The issue is that Americans won’t take the job given the wages and benefits that are being offered. Trucking is a horrible job that requires long hours, necessitates months away from home every year, gives very little prestige, and offers work that is both dull and stressful. And yet it also pays really well and the industry draws in plenty of American workers. Continue reading »

Dealing with Poverty

 Posted by  Education, Healthcare, Issues, Poverty, Social Security and Welfare, U.S. Politics  5 Responses »
Aug 102006
 

The last few days, I’ve talked quite a bit about poverty, and what it actually looks like in the United States. I’ve tried to demonstrate that poverty is a real issue in the United States, that cannot be simply dismissed as a solved problem or an unimportant issue. So what are we going to do about it?

The first thing to note is that we do a lot for the poor as it is, although those programs have been under serious attack for the last decade or more. Which is sad, because many of those programs work reasonably well, and many others that do their jobs poorly have been torn down without replacement. Which is why the biggest lesson that anyone can take from this whole thing is that it is hugely important to consider the impact of proposed changes to government programs on the truly needy.
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Friday’s Proposals

 Posted by  Bush Administration, Healthcare, Issues, Social Security and Welfare, U.S. Politics  No Responses »
May 022005
 

On Friday, President Bush made a Social Security proposal that would actually address the long-term health of Social Security. (This is as opposed to the privatization which would rethink how we approach Social Security, and cost us money, at least in the short-run.) For this, he should be commended.

As for the proposal itself, well, I have mixed reactions. The proposal would pay for Social Security by adjusting how Social Security increases with respect to inflation. The short version is that there are two standard ways of measuring inflation; one that tends to slightly over predict inflation, and one that tends to slightly under predict inflation. Right now, Social Security is pegged to the higher one, meaning that over the last fifty years, benefits have risen significantly faster than inflation. Bush’s plan would continue to measure low-income workers at that level, but all other workers would have their benefit increases pegged to the lower measure. So, over time, poor workers will have their benefits rise at the same rate as currently, whereas middle and upper-income workers will have their benefits rise more slowly, solving the long-run fiscal problem.

Now, on the plus side I appreciate that the plan protects the income of poorer Americans, and it is an actual fix to the long-term Social Security problem. On the down side, Krugman is absolutely right in his editorial today when he says that the middle classes will get hit hardest by this plan, which is not really a good thing. There is also the issue of keeping all Americans reliant on Social Security in order to protect the program. Let me explain.

The problem with means-tested programs is that the poor have the least political power. They don’t vote as often and they don’t donate to campaigns as often. The upshot is that means-tested programs (or programs that give different benefits to the poor and rich) tend to be hit hardest when it comes time to cut budgets. Witness the Congressional budget passed on Friday which tries to pay for capital gains tax cuts with cuts to Medicaid. The conclusion to draw is that if you want your program to survive then you want politically powerful people to have an interest in it surviving. Medicare is a more politically powerful program than Medicaid because there are a whole lot of middle and upper-class people who benefit from the former. So, if we cut benefits for Social Security to the middle and upper-classes, that decreases their desire to fight for it, which makes bigger cuts to Social Security more possible in the future. And that makes me nervous.

On the same subject, I am still waiting for someone, anyone, to seriously propose that we solve the Social Security problem by allowing the SSA to diversify their holdings.

Oh, speaking of last Friday’s proposals, I saw one conservative commentator say on Friday that Bush’s Social Security plan indicated that it was the Republicans and not the Democrats who were really interested in protecting the poor. So, Bush makes a Social Security proposal that does not cut (but does not increase) benefits for the poor, on the same day that Congress passes a resolution that he supports that would substantially reduce healthcare funding for the poor, and this makes him a champion of poverty? If there is a shred of truth to this statement, which I am afraid their might be, we are only a step away from the return of debtors prison and indentured servitude.

May God have mercy on us all.

Fear, Lies, and Social Security

 Posted by  Bush Administration, Fiscal Issues, Healthcare, Issues, Social Security and Welfare, U.S. Politics  2 Responses »
Apr 062005
 

“At the end of 2004, 48 million people were receiving benefits: 33 million retired workers and their dependents, 7 million survivors of deceased workers, and 8 million disabled workers and their dependents. During the year an estimated 157 million people had earnings covered by Social Security and paid payroll taxes. Total benefits paid in 2004 were $493 billion. Income was $658 billion, and assets held in special issue U.S. Treasury securities grew to $1.7 trillion.”
- From 2005 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, “Overview, Highlights” section.

“Treasury securities are safe. They’re backed by the full faith and credit of the United States government.”
- From the Bureau of Public Debt FAQ on Treasury Bills, Notes, Bonds, and TIPS

“You see, a lot of people in America think there’s a trust, in this sense: that we take your money through payroll taxes and then we hold it for you, and then when you retire, we give it back to you. But that’s not the way it works. There is no ‘trust fund,’ just I.O.U.’s that I saw firsthand, that future generations will pay – will pay for either in higher taxes or reduced benefits or cuts to other critical government programs.”
- President George W. Bush speaking in Parkersburg, West Virginia, yesterday (Click here to see the New York Times coverage, or here to see the Reuters coverage)

Read those three quotes carefully. All are from different parts of the executive branch. The first two are issued by generally respected agencies and are true. The Social Security Administration holds $1.7 trillion dollars in assets in the form of United States Treasury Securities, and United States treasury securities are generally considered the safest investment in the world, backed by the full faith and credit of the United States government. The third quote, however, seems to contradict the first two.

First, President Bush says that there is no Social Security Trust fund, something that I am sure the Board of Trustees of the Federal OASID Trust Fund would like to know. Then he says that the trust fund that does not exist is simply comprised of IOUs that he has seen first hand. That is rather odd, considering that the United States Bureau of Public Debt no longer issues paper bonds, so I am curious exactly how President Bush saw these things first hand. Furthermore, the phrase “just IOUs” is specifically designed to make people doubt that they are real assets, a notion which I am sure the Bureau of Public Debt would like to know. Perhaps they should update their FAQ to say that “Treasury Securities are just IOUs that the United States government might get around to paying back one of these days.”

Finally, President Bush ends his statement by saying that future generations will have to pay for these IOUs in higher taxes, reduced benefits, or both. Well, it is true that government will repay its debts, although it is curious that the president who has presided over the largest expansion of the debt in the United States history is suddenly so worried about our ability to pay it back, even as he proposes expanding it even further. And he also failed to mention that the United States government will pay back that $1.7 trillion. If we raise taxes or cut benefits to protect Social Security, which may have to be done, it simply affects the timetable upon which the SSA will cash in those funds. In other words, just in those three sentences, President Bush proved himself to be irresponsible, reckless, hypocritical, and a liar.

Republicans often say that they think government should run more like a business. Fine. If the CEO of Citibank came this close to implying that Citibank would not honor its loan commitments he would be fired on the spot. If he made public statements designed to undermine public trust in Citibank’s assets he would also be sued for slander. I’d be perfectly fine with holding President Bush accountable by those standards.

Republicans also say that presidents should be chosen based on their character. They like Bush because he is supposedly a good Christian man and they hated Clinton because of his immoral behavior. They even impeached him for lying about his sex life. But what kind of Christian man lies like this? Isn’t it a mark of bad character to be willing to misrepresent the truth in order to scare people into agreeing to your own bad ideas? And if we were so upset at Clinton for lying about his sex life, isn’t it so much worse to be lying about the fiscal security of Social Security? Where is that conservative moral outrage now?

A Christian President should operate from a position of Truth and Faith. George Bush is operating from a position of Lies and Fear. A Christian President should stand up to the powerful and stand up for the powerless. President Bush is all too willing to give corporate tax cuts and pay for it with reductions in Medicaid benefits. He may be a Christian, and he may be President, but he is no Christian President.

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