Spending Can Be Cut

Politicians who tell you democracies can’t slash spending are lying.

When times are hard financially, families frequently let their credit card balance expand. But they also slash expenses to meet their new financial situation. They stop going out for dinner, for instance, or take their vacation locally instead of abroad. They might even downsize their house.

When economies fall into recession, gov-ernments too tend to let their “credit card balances” expand: Their budget deficits explode. Slashing spending, though, is regarded as a step too far.

The U.S. government is not the exception that proves the rule. During the economic crisis of the past 18 months, Washington has increased its deficit fast and hard. According to the Congressional Budget Office, the deficit grew from 1.2 percent of the Gross Domestic Product (GDP) in 2007 to 10 percent in 2010—roughly $1.4 trillion. Meanwhile, the consensus on both the right and the left seems to be that cutting spending is simply impossible.

In May, House Whip Eric Cantor (R-Va.) unveiled the GOP’s YouCut website, which includes five possible spending cuts for citizens to vote on. Rep. Cantor promised to take the winning cut to the House floor next week for members to consider. The average price tag of each reduction would be just $638 million in annual savings. That’s less than 0.02 percent of the $3.7 trillion federal budget, or just 0.04 percent of this year’s federal deficit of $1.6 trillion. In the big picture, the cut would basically be meaningless.

On the Democratic side, President Barack Obama’s recent budget request promises to freeze discretionary spending (excluding the Pentagon and homeland security) to save $250 billion over 10 years. Our annual deficits are $1 trillion or more. Again, the reduction is essentially meaningless.

Also on the left, a recent study by the Center for American Progress, called “The New Deficit Commission’s 2015 Targets,” argues that the bipartisan commission tasked with reducing the deficit may have no choice but to recommend tax increases. You’d need $250 billion in across-the-board cuts—6.8 percent of spending—to make total government expenditures (minus interest on the debt) equal total government revenues; and that, the study concludes, is just too much. “Not only,” the authors write, “does such a policy not make much sense (surely some kinds of federal spending are more important than others), but it also doesn’t pass the political reality test. There is simply no conceivable way President Obama and Congress—not to mention the American people—will allow cuts of this magnitude to be applied equally to all parts of the budget.”

Well, we’d better hope big cuts are conceivable. A recent International Monetary Fund (IMF) study, “The State of Public Finances Cross-Country Fiscal Monitor: November 2009,” shows that the United States has one of the largest structural deficits in the world, almost as large as that of Greece. And we know how well things are going in Athens. To get our national debt back down to 60 percent of GDP (the number that economists use as the limit for fiscal sustainability) by 2030, the U.S. would need to undertake a major fiscal adjustment, equivalent to 8.8 percent of GDP. That could entail cutting spending, increasing taxes, or both—but no matter what, the money involved will be significant. Whether or not the number is exactly correct, the basic message is true.

Yes, cutting public spending can seem challenging. Entitlement spending increases automatically in a recession and as the population ages. Meanwhile, military actions in Afghanistan and Iraq and the ongoing threat of terrorism all help lawmakers claim that those parts of the budget are off limits. Lawmakers tend to be wary of spending reductions in general, as they believe their political survival rests on rewarding their supporters with jobs or subsidies.

Yet there is evidence that Congress can cut spending—and cut it by a lot. First, consider a new Goldman Sachs Global Economics study by Ben Broadbent titled “Fiscal Tightening Need Not Be Electorally Costly, But It Will Test Government Unity.” Broadbent shows that spending cuts can actually be a good thing politically. “It is commonly assumed that cuts in government spending will be both economically painful and electorally costly,” he writes. “Neither is borne out in the data. We’ve written before about the limited (and sometimes positive) effects of spending cuts on economic growth, at least in open economies. Here we add some simple analysis on the electoral consequences and, like others, find no evidence that spending cuts reduce support for the incumbent government. If anything the opposite tends to be true.” Among other evidence, the paper cites the three governments that executed the most high-profile expenditure-based deficit reductions in recent history and yet were re-elected: Ireland in 1987, Sweden in 1994, and Canada in 1994. 

Broadbent’s empirical study complements a 1998 Brookings Institute study by the economists Alberto Alesina, Roberto Perotti, and Jose Tavares. The trio found “no evidence that looser fiscal policy implies longer political tenure.” They also show that “cuts in the government wage bill do not increase the probability that the government will collapse…nor does the popularity of the government fall in the immediate aftermath of fiscal adjustments.”

Nor is every governmental expense as politically risky as Medicare or the Pentagon. According to the Government Accountability Office’s “U.S. Government Financial Statements, Fiscal Year 2009 Audit,” overpayments by the federal government alone are estimated to be at least $98 billion each year. That’s $500 billion over five years. Certainly that would never fly at the individual level: Imagine paying your mortgage twice, or coughing up cash for stuff you never received.

Other countries have managed to cut spending. According to the IMF study, over the last 30 years nine developed nations have cut their structural deficits by at least 10 percent of GDP. Ireland reduced spending by 20 percent from 1978 to 1989. Sweden and Finland both achieved cuts of 13 percent from 1993 to 2000, and Sweden pulled off another 13 percent cut from 1980 to 1987. Denmark managed a 12 percent reduction from 1982 to 1986; Greece, 12 percent from 1989 to 1995; Israel, 11 percent from 1980 to 1983; Belgium, 11 percent from 1983 to 1998; Canada, 10 percent from 1985 to 1999. 

And in the past few months, faced with rising deficits that threatened to bankrupt the country, Lithuania took some drastic austerity measures meant to produce savings equal to 9 percent of GDP in one year. Among other reforms, the government cut public spending by 30 percent, slashing public sector wages 20 to 30 percent and reducing pensions by as much as 11 percent. If they did it, why can’t we?

According to the Bureau of Labor Statistics, in 2008 the average consumer unit (2.5 persons) earned $63,563 and spent $50,486. Of these expenditures, $21,533 was devoted to essential spending—that is, clothing, shelter, transportation, and health care. Out of the remaining $28,953, spending on entertainment consumed an additional $2,835 and $5,113 was devoted to miscellaneous items. 

So if the average family were seeking to trim its operating costs, there are 28,953 non-essential dollars, well over 50 percent of total spending, that could hypothetically be cut. The federal government could do it as well. I don’t think citizens concerned about the nation’s economic future will accept arguments that spending can’t be cut when we taxpayers can and do cut our personal spending during difficult times. I also doubt that 0.02 percent is all that can be trimmed from the budget. The cuts we need and should demand are more like 10 percent, 20 percent, 30 percent, or more. It’s time for lawmakers and the policy community to start acting like real people with real money and to start excising those billions from the nation’s bloated budget. 

Contributing Editor Veronique de Rugy (vderugy@gmu.edu) is a senior research fellow at the Mercatus Center at George Mason University.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Blinky||

    Household != government.

  • Paul||

    You can say that again.

  • Sam||

    Government != household

  • ||

    Java programmers == assholes.

    Real men use /=

  • The Controller||

    Python.

  • Old Mexican||

    Contributing Editor Veronique de Rugy explains that when politicians tell you that democracies can't slash spending, those politicians are lying.

    Does one really need a "Contributing Editor" to tell one that?

  • ||

    Any form of government that allows all to vote, dependent on age only, will become redistributionist. And that includes this democracy (republic). Any spending cuts will be temporary.

  • Max||

    But, Veroniquem politicians (unlike CEOs and other private sector heroes) always lie! Tell us something new, Sweetie.

  • Old Mexican||

    Re: Max,

    But, Veroniquem politicians (unlike CEOs and other private sector heroes) always lie! Tell us something new, Sweetie.

    "Private Sector heroes"?

  • Max||

    UNLIKE Read carefully.

  • Old Mexican||

    Re: Max,

    I just love your non-sequiturs. I did not question your use of the word "unlike". I asked you what are these "private sector heroes"? Only individuals have heroes, not sectors.

  • Max||

    Private sector heroes = herooes of the private sector.

  • Max||

    Could it be that Reason is running out of ideas?

  • ||

    No, but they must have run out of unflattering pictures of the zero.

    Perhaps they should show this one of Michelle giving a Palinesque wink and thumbs up after taking a dip in the oily gulf.

  • The Gobbler||

    I think when Barack fails to get re-elected, she'll be the one taking it the hardest. She has to know that unlike Hillary, no one would want her to be their senator let alone president.

  • ||

    no one would want her to be their senator let alone president dog catcher.

  • JohnD||

    She can go back to her old job as a Chicago "Ho"

  • The Gobbler||

    Sure wish they'd run out uf bottom-shelf trolls.

  • ||

    YES!

  • Old Mexican||

    How do authoritarians and the Economics illiterate (one and the same person, really) try to obviate the Laws of Economics?

    Easily. By saying: "Well, you see, in the aggregate . . ."

  • Tony||

    There are no laws of economics. At least not ones you could comprehend.

    Remember, it's a fallacy to assume that things are truer because they're simpler.

  • A is Awesome||

    And then there are the non-arguements that simply try to insult you. Seriously, debating is worthless nowadays.

  • Tony||

    I have a long history of dealing with OM's batshit question-begging nonsense.

    He literally believes that his weird bullshit is self-evidently true and that anyone who disagrees is by definition wrong.

  • Soonerliberty||

    Pot, meet kettle.

  • Old Mexican||

    Re: Tony,

    He literally believes that his weird bullshit is self-evidently true and that anyone who disagrees is by definition wrong.

    And yet you write stuff like this:

    There are no laws of economics. At least not ones you could comprehend.
  • The Libertarian Guy||

    "He literally believes that his weird bullshit is self-evidently true and that anyone who disagrees is by definition wrong."

    Like virtually everyone who slavishly admires Keynes?

  • Soonerliberty||

    Right, Ockham's razor is bullshit. People said similar things to Galileo. "Your theory is much too simple to be true." This is the typical leftist counter to anything. "You see, it's more nuanced than that." If it's so complicated that no one can understand it, how on earth are you supposed to regulate it with science?

  • Tony||

    Occam's razor has nothing to do with what I'm saying. The economy is an extremely complex thing. Any simple and elegant set of first principles is likely to be wildly inadequate.

  • Old Mexican||

    Re: Tony,

    The economy is an extremely complex thing.

    You are confusing Economics with th economy. No wonder you say stuff like: There are no laws of economics.

  • Soonerliberty||

    So scarcity, time, space are out? Or is having no founding principles better? Science is all about simplifying infinitely complex systems with simple laws. Or can only bureaucrats understand an infinitely complex system with no first principles?

  • Tony||

    I'm saying we shouldn't bother wasting our time trying to figure out which economic first principles are the most intellectually satisfying and instead focus on what kind of society we want to have, and then try to make the economy work to achieve it for us.

  • Old Mexican||

    Tony, there's no Santa Claus. Just wanted you to know that.

  • ||

    Just thought I'd let you know - the only reason I don't stop at your house is I usually use up all my coal in D.C. before I get to you.

  • A is Awesome||

    Tony, we know what kind of scoiety we want to have. Everyone knows it. As cliche as it is, it is a free society. Part of that is economic freedom, that is, the ability to conduct business as we please and maintain property rights (which includes money).

  • Soonerliberty||

    If you don't have a basic understanding of how an economy works at the micro level, how on earth do you propose to achieve your economic goals at the macro level? That's like saying we should not try to understand evolution at the micro level. It's unimportant. We should only look at it on the macro level and try to come to conclusions. Your method is the one that leads to radically wrong conclusions, such as, "Well, the sun goes up over here and down over there. It must go around the earth!"

    And why are you saying 'we' and 'us'? I am not in your collective.

  • Tony||

    Oh we should do everything we can to understand economics at the micro and macro level, what I'm against is establishing a set of first principles and then requiring everything to conform to them regardless of outcome.

  • Soonerliberty||

    Do you not have a set of first principles? It seems you have them when it comes to global warming, guns, equality, economics. Or perhaps you have no principles.

  • Tony||

    Interesting question. I do have them, but I don't consider them written in the quantum structure of the universe, I consider them means to ends.

  • Chad||

    The problem, Sooner, is that YOU MORONS don't know how it works at a micro-level. You just assume that the world is populated with Homo Economicus and that externalities don't exist, and conjecture from there.

    When you get past Chapter One of your econ book, get back to us. Until then, please just accept that a little knowledge can be very dangerous.

  • Jason||

    That's exactly the Austrian argument against Keynesianism...

  • Sean W. Malone||

    It's kind of astounding really - the only people I know making the homo economicus types of arguments are expressly Keynesian, or at the very least incredibly "main stream" and very much influenced by the more vulgar forms of macro.

    The Austrian School are really the only guys out there with a full-bodied theory of money, interest & the business cycle who actually view economics as the operation of human beings.

    Perhaps if Chad had ever gotten to the chapter of his econ book on "Ludwig von Mises" and the book he wrote called "Human Action" he might realize that his strawman doesn't stand up to the lightest of breezes.

    Of course that would presume Chad wasn't a completely dishonest idiot hack...

  • Chad||

    Sean, the Austrians refuse to make any empirical predictions, lest they be proven wrong. How the hell is that "full-bodied"?

    I'll let Saint Paul do the work for me.

    http://www.slate.com/id/9593

    12 years old, and still spot on.

  • Sean W. Malone||

    They make/have made, and have been accurate on all kinds of predictions all the time - what they grasp, and you don't, however is that predicting in economics isn't about models & statistics but rather using "if/then" kinds of logical deduction.

    The mainstream predictions are constantly and often quite disastrously wrong... I'm not really sure how that's any kind of gold star on their record, dude.

    But really the problem here is that you don't really understand the Austrian methodology, or rather, you choose to ignore the crucial differences between that and Keynesian methodology - and as such you ask all the wrong questions and expect answers that you're never going to get.

  • Chad||

    Austrians don't make predictions that can be tested, Sean. Nor can they explain why perfectly good workers should lose their jobs, just because someone mal-invested in the past.

  • Soonerliberty||

    On the contrary, they predicted the first depression and this recent one, plus the tech bubble burst. All the while, the Keynesians were touting the new era of prosperity.

    We don't say workers should lose their jobs. We say they lose their jobs because of malinvestment, caused by artificially low interest rates and fiat money. Now, surely, you would not claim that no one should ever lose their job for any reason at any time. Surely, the person who made the malinvestments have to keep them employed at a loss. This would be idiocy of the highest order.

  • Soonerliberty||

    *doesn't have to keep them employed*

  • d||

    Huh? Why do perfectly good workers lose their jobs because of someone else's mistake?

    Or why should?

    This isn't an economic question, it is a political question.

    Derek

  • Sean W. Malone||

    Yeah, I always enjoy how little you know about anything, Chad.

    For you to opine on economics is kind of a riot by itself, but for you to comment on the Austrian school is especially ridiculous...

    That said, the Austrians quite clearly explain why "perfectly good" workers would lose their jobs today due to mal-investments in the past. Take the classic example of the builder... Scale it up and call him the "developer".

    This developer sees a massive amount of (Federal Reserve created) "demand" in his product based on what appears to be real money flowing in, so he starts building away. To facilitate this building glut - he hires 100 "perfectly good workers".

    Unfortunately, the demand hasn't come from actual consumers, but rather from politicians. And when our friendly developer built the houses, he was operating in an environment where there appeared to be an endless supply of credit - so he thought that he'd have no problem selling...

    Of course, what actually happens to our poor developer is that he's just a wee bit late - and everyone who wanted (and could afford) a big new luxurious house already had one... And to make matters worse, there were thousands of other developers who did the same thing, and so now there's far more supply of that type of good than real consumers need or want... And so it became impossible to sell all these fancy homes at the price the developer was expecting.

    So now, banks won't lend to him to make new homes anymore, and he's way over extended on the homes he'd already built - and those 100 "perfectly good workers" don't have anything to do.

    So... Uh... They lose their jobs.

    Labor is actually a huge part of what has been misallocated here. And when the inevitable collapse happens thanks to people operating on government pressure rather than real consumer demand - that labor will have to be "reallocated".... Or... Fired.

    Your ridiculous ignorance aside, Chad - that explanation is vastly superior to the Keynesian "explanation", which is essentially just that randomly, for no real reason at all, employers go crazy and fire good workers just cause.

  • ||

    Chad, define "good."
    You're a Marxist. Just come out of the closet.

  • Amakudari||

    Homo economicus is a subset of Keynesian and neoclassical beliefs.

    Homo economicus is not a subset of Austrian or behavioral beliefs.

    People here are not obligated to fall in either of these camps, but I suspect you'd find more in the latter. Red herring.

  • The Libertarian Guy||

    TEH EXTERNALITIES!!!1!

  • Soonerliberty||

    Chad, you're completely wrong. Homo Economicus is a myth, and most libertarians reject that. We don't need a rational calculating individual to prove that someone chooses something. All we need to know is that someone chooses something and has a preference order of some sort, whether rational or irrational (and who's to judge that). You can stop using that as a criticism now, b/c you're way off base and criticizing the wrong group of people, but then again, I wouldn't expect you to understand what you're criticizing. Keep strawmanning away.

  • Soonerliberty||

    Second, you always only look at one side of an externality. A good example is education. You believe it is a positive one, but what about indoctrination and a more well-informed criminal population. The studies have in fact shown that gov't education increased crime, not the other way around.

    Gov't is for sure a negative externality.

    It is true that you are just educated enough to be completely dangerous when voting. It's no wonder our system is so wrecked beyond belief.

  • Paul||

    and then try to make the economy work to achieve it for us.

    *scratches head*

    That sounds dangerously like twisting facts to fit a narrative.

    "Price controls! That will produce better outcomes!"

  • ||

    I'd like a society in which everyone is guaranteed an annual income of $1 million but prices stay about where they are now, except houses are guaranteed to cost no more than $250,000, and also you can retire at 60 with a pension equal to 90% of your last year's wages, plus college is free for everone, and the government spends $5 trillion a year researching cancer cures and stuff so I can live to be 100.

    Oh, and I'd like a pony, too.

  • Sean W. Malone||

    Carl, you sir can have that economy, because Tony says there are no laws in economics - all we have to do is force "the economy" to provide that outcome for you.

  • Almanian||

    Carl, I'm in! When do we get started?

  • Pony Dealer||

    I'll go talk to my sales manager, Carl. I'm sure we can strike a deal.

  • ||

    You can retire at 25 instead of 60.

    And unicorns instead of ponies.

  • Unicorn Dealer||

    Forget those faggots over at the pony dealership... we can REALLY fix you up!

  • BakedPenguin||

    Any simple and elegant set of first principles is likely to be wildly inadequate.

    Well, now we know how liberals (and authoritarian conservatives) deny supply and demand...

  • Tony||

    I don't deny supply and demand. I just don't think that there's anything magical about the supply/demand equation in an unrestrained market.

  • A is Awesome||

    That's because it's not magical, it's logical. Supply and demand works fine in an unrestrained market filled with rational businessmen and semi-rational consumers.

  • Paul||

    Tony, there is nothing magic about the supply/demand equation in an "unrestrained" market.

  • db||

    WTF happened to the laws of thermodynamics? Damn, I better find a new line of work.

  • Amakudari||

    Dude, the fallacy of composition is just about the first thing you learn in economics. Some of its applications are undoubtedly true, but it's also the first refuge of economists trying to trot out complexity and nuance as part of some "internally coherent" view that's wildly counterintuitive.

    The case in point here is Japan, which did have massive deficits, and simply had consumers and businesses respond by retrenchment do to perceived future tax hike. Now at >100% net debt/GDP (200% gross), there's no real recovery to be seen.

    The problem is that we've had a credit-based recession, and aggregate demand and individual creditworthiness have fallen. The arguments to reflate seem to take no account of that, and to me the consequences of continued profligacy are far scarier than getting our house in order.

  • Old Mexican||

    Re: Tony,

    There are no laws of economics. At least not ones you could comprehend.

    Yeah, and scarcity can be conquered if people just stopped being so selfish. I have heard that before.

  • Soonerliberty||

    You see, Tony will eliminate scarcity by hoping really hard against it. Or he will make laws banning scarcity, time, space, and nature. With good, sound, nuanced legislation, humanity can overcome all, especially if we hold hands and chant "hope and change."

  • Old Mexican||

    You seem to have felt offended by my description of what AUTHORITARIANS and the ECONOMICS ILLITERATE say...

    Shoe fit?

  • Jason||

    QED

  • Fiscal Meth||

    I posted this when your brother Chad tried the same trick in "Scientific Consensus Redux" a couple weeks ago.

    Chad on epistemology|6.29.10 @ 10:51PM|#
    "Knowledge can never be attained by the application of reason to reality. No cause ever has the same effect twice, everything is chaos. There is no point asking for evidence because your feeble mind could never comprehend it. The truth exists in a higher realm and those who have not visited this higher realm may only know truth by accepting it, by faith, from those who have experienced the real truth in the other world... the higher world..."

    ...Keynesian utopia

  • Grob||

    Yep, Romer was bragging about all the jobs saved but when a Senator from New York asked her about how many jobs were saved in New York, Romer replied she did not know the numbers in that much detail. WTF?!

  • JoshINHB||

    It's a big picture thing.

  • ||

    Here's a fun fact, The US has lost it's AAA rating from at least one source (and would from more if they weren't to pussy).
    http://citywire.co.uk/new-mode.....ce/a414523

    Anyway, nice article, but why not lay out where the cuts should come from?

    I think Paul Ryan's road map is a good start.

  • Mike M.||

    This is very bad. At about 2.5 trillion dollars, they are our largest foreign creditor. This is going to make it a lot harder for us to continue borrowing money at the current rates.

  • The Gobbler||

    No. This is very good as we need to stop borrowing.

  • Chad||

    Of course we do. You morons just don't understand the externalities.

  • Sean W. Malone||

    I can't tell if this is actually Chad, or spoof-Chad.

    What do you guys think?

  • Sean W. Malone||

    I can't tell if this is actually Chad, or spoof-Chad.

    What do you guys think?

  • Almanian||

    I vote spoof Chad. Real Chad usually doesn't get agitated so quickly.

  • ||

    Spoof Chad.

  • West Texas Boy||

    I immediately thought, "spoof"

    And a poor one at that. Chad usually makes a dispositive illogical argument and then resorts to shouting EXTERNALITIES! once his original argument is rebutted.

    This spoof jumped too soon.

  • The Libertarian Guy||

    TEH EXTERNALITIES!!1!!!!

  • BakedPenguin||

    It's not clear exactly how Dagong came to its conclusions, which widely counter the views held by established agencies Fitch, Moody's and S&P.

    No? It is to Niall Ferguson, and anyone else with half a brain. Colossal, increasing debt with diminishing revenue makes for a poorer risk.

  • d||

    Heh. The guys who rated the mortgage trash AAA rate the US debt at AAA.

    What could go wrong?

    Derek

  • A is Awesome||

    You know what's the funny thing about debates now? They aren't trying to refute each other's arguements. They try to deny each other's facts, and tell them that the premise of their arguement is wrong. It's no wonder no compromises can be made, when they can't even agree on reality.

    FACT: Obama is a secret Muslim.

  • ||

    It's not a secret. It's right in his name.

  • Suspicious Israelis||

    Don't think we didn't notice.

  • 8====D||

    lol, excellent

  • West Texas Boy||

    +∞

    This is so totally accurate I think I'm about to collapse into a singularity of clarity.

  • ||

    Of course spending can be cut. If ten people in DC cared about the economic health of this country, especially in the coming years, they'd take a sharp sword to the budget.

    Naturally, that's not the case. Oh, dear, I might upset a constituency!

  • ||

    If by "constituency" you mean "big donors who write big checks" then I agree. But if you mean the rank 'n' file voters in his district, I'm not sure I do.

    I think people in general are relatively rational. If you put it to the actual voters of the Honorable J. Random Representative, I think there's a good chance they would vote for fiscal discipline. They're not fools. They know very well some giant Easter egg project that provides 2,000 jobs in the district doesn't mean much when (1) these are not jobs they are likely to get, or want, since they've already got jobs, usually, and (2) they're going to have to fork over more in taxes to pay for it. Yes, other taxpaying fools in other states will, too -- but even paying a mere 1/50 of the total price of a giveaway to BigBendOverCo and its union is annoying.

    But the big guys who write the big checks -- public-employee unions, teacher unions, giant corporations swinging sweetheart deals -- do care very much about this kind of bacon.

  • Tony||

    How about we cut the spending that is Bush's unpaid-for $600 billion tax cuts? Will that work? Or are you guys gonna agree with Sen. Kyl (R-Ariz) that deficit spending is okay as long as it's for extremely expensive tax cuts?

  • ||

    It would not have much of an effect, since we spend five times that much each year.

    It's the spending, stupid.

  • Tony||

    Tax cuts = spending.

  • Chad||

    I disagree, Tony. They are equivalent to spending, with respect to deficits. But they are not identical.

  • Tony||

    That's what I mean. But the Kyl episode was very telling. And a lot of people around here just assume that tax cuts pay for themselves, or outright say that revenue doesn't increase funds.

  • Chad||

    I agree. Most quarter-way intelligent conservatives (that's the best of them) have come to the conclusion "The Laffer Curve argument kinda makes sense. Ergo, we are on the right-hand side of the curve. Q.E.D."

    The rest just hear their God SeanLimBeck tell them that tax cuts make revenue go up, and knowing that God never lies, need no further proof.

  • The Libertarian Guy||

    Cut spending AND keep taxes low. Bam. Works if you don't have your head shoved up Paul Krugman's ass.

  • Paul Krugman's Ass||

    Don't be shy, plenty of room!

  • ||

    Cut spending AND keep taxes low. Bam. Works if you don't have your head shoved up Paul Krugman's ass.

    There must be some optimal tax rate (I mean total tax rate including sales, income, etc.). *Always* cutting taxes does not *always* increase tax revenue. However, I think it would pretty much *always* be good for the economy (not considering specific necessary public spending for infrastructure, some minimal level of public benefits, etc.); just not good for Washington establishment.

  • Paul||

    Tax cuts != spending. Tax cuts = reduction of revenue.

    That would be akin to calling Tax Increases to be equal to savings.

  • The Libertarian Guy||

    Meanwhile, liberals are still saying "it's just rolling back the tax cuts on the wealthy".

    Which is like saying "we cut the price of our products, but we're rolling back the price cut, but it's not a price increase".

    Liberals really think people are like children.

  • Jason||

    Liberals really think people are like children.

    Just poor people and non-liberals. Wealthy liberals are the Right People To Have in Charge.

    Even Keynes said so.

  • Doc Merlin||

    Taxes on the wealthy are usually the least effective taxes in terms of volatility, since the wealthy and their money are very mobile. This is why highly regressive taxes like the European style VAT are so effective at generating revenue, but luxury taxes are so ineffective.

  • Old Mexican||

    Re: Tony,

    How about we cut the spending that is Bush's unpaid-for $600 billion tax cuts? Will that work?

    ONE thing I am pretty sure you DON'T know is basic finance. A tax cut is NOT spending.

  • Tony||

    How is it not? This IS pretty simple: revenue - expenses.

  • Old Mexican||

    Re: Tony,

    How is it not? This IS pretty simple: revenue - expenses.

    One day I told my wife: You spend too much. She said: No, you don't make enough, so it is you who are spending too much. One thing I know: Never argue with the wife, with drunks and with authoritarians who are economics-illiterate.

  • The Libertarian Guy||

    How about:

    "Gosh, sweetie, I've been out of work for almost a year, and the bills are REALLY piling up. What say we take out three or so mortgages, and buy a bunch of shit we don't need?"...

    THAT is what the Keynesians are saying, in essence.

  • Sudden||

    Revenue (tax receipts) - expense (spending) = Budget surplus/deficit.

    The above example shows fairly clearly that taxes are revenues while spending is an expense (assets vs. liabilities). Its a lot harder to increase one's assets (especially in this case given the sensitivity of the overall economy), so lets go ahead and work on decreasing liabilities (read: spending) first.

  • Sean W. Malone||

    Look man, don't expect Tony to comprehend something as basic as a financial statement. I mean, geesh... He's not bright enough to grasp that.

  • Old Man With Candy||

    And a tax rate cut is not the same thing as a tax cut.

  • Mike M.||

    Hey, next year most of us who work will be paying the highest taxes we've ever paid in our lives, so what the hell are you worried about? Guys like you should be thrilled.

  • Tony||

    No, we won't. We want you fuckers bled dry.

  • ||

    Allowing people to keep their own money is not spending, it's less stealing.

  • ||

    +1,000,000

  • Chad||

    So, what are you going to cut? Be specific and use real data.

  • Old Mexican||

    Re: Chad,

    How about the armed forces budget? There's nothing in the Constitution about having a standing army, only about keeping a navy, and the USS Constitution is still active - no need for more than that.

  • ||

    I'll keep it simple and focus on some of the big things

    Agriculture subsidies

    Raise age limits for SS and Medicare (70 + indexed for life expctancy)

    Stop heroic end of life care (that's funded with tax payer dollars)

    Military waste, most US bases in Europe etc

    I think that's a pretty big start, and would get us most of the way, of course there's room for other stuff as well.

  • 8====D||

    +drug war

  • ||

    damm, how could I forget that. Still in the scheme of things it's not a huge money waster, it's more a liberty thing (not that the money savings wouldn't add up)

  • Chad||

    But what about the children!!!

  • Hate Potion Number Nine||

    1) Agriculture subsidies
    Why do you hate business?
    2) SS and Medicare
    Git that gummiment outta my medicare!!
    3)end of life care
    What about Terri, you heartless bastard?
    4)Military waste
    Why do you hate America?
    - or -
    The President's a MUSLIM!!!

    And this is just the Republicans

  • West Texas Boy||

    1) Agriculture subsidies
    Why do you hate business?

    Not quite. While in reality, they are protecting the big businesses, they frame it in terms of "national security" and "mom and pop".

  • JohnD||

    Hmmm, Kronebridge. I could go along with that.

  • d||

    Means test every entitlement, either disqualify or tax back.

    Derek

  • ||

    Raise age limits for SS and Medicare (70 + indexed for life expctancy)

    One problem I have with raising the retirement age is that people with different types of jobs may have different lifespans because of them. An office worker and a coal miner, for example. One idea I had was to base the length of benefits somehow on the amount of those benefits. Less amounts would involve longer benefits and also would not be subjecgt to reduction because of retiring at 62 instead of 65, for example. (Maybe this is already done.) I'm thinking this would make any change more politically and doable. The retirement age will need to be raised, but maybe we can do this only if it is raised on higher earners.

  • Jason||

    Cutting foreign aid, eliminating immigration quotas and creating a guest worker program then sending INS after people who are an actual threat to US security.

    "Ending Global Apartheid":

    If the 30 affluent countries making up the Organization for Economic Cooperation and Development (OECD) were to allow just a 3 percent rise in the size of their labor forces through loosened immigration restrictions, claims a 2005 World Bank report, the gains to citizens of poor countries would amount to about $300 billion. That’s $230 billion more than the developed world currently allocates to foreign aid for poor countries. And foreign aid is a transfer: The $70 billion that rich countries give leaves those countries $70 billion poorer. According to the World Bank study, wealthy nations that let in 3 percent more workers would gain $51 billion by boosting returns to capital and reducing the cost of production.
  • ||

    I've encountered this when discussing the budget of WA state. When I start listing actual agencies that *I* would eliminate, cut spending on, or consolidate with other departments, the response is always a shrill "YOU WANT TO CUT EVERYTHING WHAT ABOUT TEH CHILDREN WTFBBQ!!!11!!"

    One thing I would do is raise the retirement age for social security by three months, each year, forever. Discuss.

  • ||

    And cut Congress' salary and staff by 10% for each year of deficit spending. It won't happen but I'll bet the budget would be balanced every year if it was an ammendment to the Constitution.

  • ||

    3 months each year forever, might be a bit much, but yes the age needs to go up. That's the simplest and easist thing to do.

  • ||

    3 months each year forever, might be a bit much, but yes the age needs to go up. That's the simplest and easist thing to do.

  • Chad||

    Congressmen are already underpaid relative to what virtually all of them could have earned in the market.

  • ||

    Unless you count kickbacks, campaign contributions, board memberships, and high ranking jobs for themselves, family members, and friends at companies that they do legislative favors for.

    It's moot anyways because I don't want a legislator who does it for the money, or desire for power. I want a legislator who does it out of desire to help improve his country, even though it's a personal sacrifice for him/her.

  • Jason||

    Speaking fees...

  • dave b.||

    Then explain why so many of them have never had a real job and have been absolute failures outside of the government sector.

  • Paul||

    Congressmen are already underpaid relative to what virtually all of them could have earned in the market.

    Bullshit. Most congressmen would be leaders of small businesses, maybe earning six figures a year, including shaky stock options. Many would be the CEO's or COO's of small never-heard-of-companies like Technigen or some such outfits which are trying to market an unproven, unapproved medical device with a sub-dollar stock price.

    This notion that everyone in Congress would be the CEO of Coke or Pepsi is fucking tired.

    Congresscritters are like the Enron of the public sector. Like Enron, in the unreglated markets, their businesses would get battered by competition, but in the regulated marketplace, they manipulate the rules and "look for loopholes" and end up in positions way above their natural level.

  • JoshINHB||

    Chad-"Congressmen are already underpaid relative to what virtually all of them could have earned in the market."

    How much is this guy worth?
    http://www.youtube.com/watch?v=zNZczIgVXjg

  • ||

    And yet they spend millions of dollars and make complete horse's asses of themselves to get underpaid.

  • West Texas Boy||

    Congressmen are already underpaid relative to what virtually all of them could have earned in the market.

    pppfffffft spit take

    Chad, sweetie, you are right in the sense that many of them earn more money once they're out of office, but that's just because they're capitalizing on their connections and experience from being in Congress in the first place. That's called "corruption" and it has nothing to do, necessarily, with one's vocational talents.

    99% of these shits - particularly the ones who never had a job out of politics or family money to begin with - would be insurance salesmen or high school principals absent their ability to pander and kiss babies. I'm not saying that those aren't honorable professions, but they rarely make as much in a year as a random congressman or senator does.

    For the most part, the entire reason these morons typically go into Congress is because they can't do anything else well enough to sate their desire to boss people around and ride in limousines. This is why most right-thinking people detest the leviathan state - the people running it are utterly unqualified to do what they take upon themselves to do.

  • JohnD||

    Why not 20%? And every government agency cuts by 10 %.

  • ||

    Freeze the salaries of all government workers until they are in line with the private sector.

  • ||

    Sage, I would prefer to get rid of Social Security entirely. Handing over 12.4% of my wages to the government to spend and "invest" in treasuries is not my idea of a productive use of capital, or conducive to economic liberty. If we must force people to save for retirement whether they like it or not, the savees should get to decide what to invest in. As far as WA state goes, do you have any initiatives I should be backing as a Seattle voter?

    Chad, I think it is wildly unrealistic to expect detailed analysis of proposed budget cuts for a 3.7 trillion dollar budget. For an organization that large, the best you can get in a comment thread is suggestions of departments that probably don't need to exist.

  • Tony||

    SS isn't really an individual retirement plan, but social insurance.

  • Old Man With Candy||

    Or neither. It's a Ponzi scheme.

    Phase it out. Phase out Medicare/Medicaid. End War on Drugs. Whoops, we just closed the budget gap by doing nothing other than limiting government to its constitutional mandate.

    Want government to do that stuff? Amend the constitution. Good luck with that project.

  • Tony||

    It's explicitly not a Ponzi scheme because its terms are known.

    We can amend the constitution when these things are ruled unconstitutional. Hold your breath.

  • ||

    "It's explicitly not a Ponzi scheme because its terms are known."

    Terms are known? Really? I thought congress was debating raising the retirment age again. It's been raised before, you know. In fact a majority in congress can change the terms of social security at any time, and has done so before. And they say that the stock market is risky......

    More generally, de Rugy's article is unrealistic. It's not an accident that all major western "democracies" are facing the same kind of deficits. The incentives that politicians perceive, regardless of what she says, push them to spend more and more, as long as there is no crisis. They have no reason to care what happens to future generations, because re-election is only a few years off (at the most). Until those incentives change, or until the power of politicians is once again limited, these problems will continue to worsen.

  • Hate Potion Number Nine||

    You do know that thinking of future consequences of actions is forbidden in libertopia.

  • Sudden||

    It is most certainly not anything resembling insurance Tony. You know how insurance companies are required by law to have a certain percentage of liquid reserve capital in order to meet its obligations? SS has no such requirement. In fact, the program has routinely run large operating surpluses for most of its history and those surpluses have been pillaged and used to finance debt on the rest of the federal ledger this whole time. So not only is it not an insurance system, whereby it set aside or invested its surpluses in order to meet future obligations, the current demographic shift and the resulting benefits owed far surpassing tax receipts is going to both decrease the artificial surpluses congress had to use for its other pet projects before and need to be propped up with general tax revenue or borrowing.

    Its one of the most poorly designed and most abused programs the feds have ever shoved down our throats... and thats saying something.

  • ||

    It's just as bad in Canada.
    The government calls it Employment Insurance but the premiums (tax on pay-days) go into general revenue. Except the federal government counts it as if it really exists, even after it has long been spent.
    Because it's called insurance you get the defenders running around insisting it's insurance.
    Yet there are no premium differentials. No deductibles. Just a mandatory pay-in. And highly variable payouts dependant on unemployment levels in one's working region, plus a host of other arcana not ever associated with insurance claims.
    But it does prove that if you call a dog turd a "rose" some people will insist it's a rose.

  • ||

    Progressives I know here use the same argument with me, and I don't buy it.

    My definition of insurance is something is a financial product that allows you to protect yourself against large, unlikely, and unpredictable losses by paying a relatively low premium and pooling your risk with the other purchasers of insurance. When "insurance" costs 12.4% of my wages, protects me (poorly) from something that I know with almost 100% certainty is coming, and I expect to pay out is not insurance. Actually, scratch that last item.

    The point is SS is not a policy I chose, I would repeal it in a heartbeat in order to retain my wages, and I have no sympathy at all for people who end up poor in their old age.

  • Chad||

    Wrong, Rust.

    SS protects you in the case that you retire during a market downturn, when the LIFETIME return on your investments is likely to be horrible and insufficient. It also protects you in the case that you become disabled, or other circumstances conspire to throw you into poverty. And it does an absolutely wonderful job of all three of these, for little cost.

  • Jordan||

    SS protects you in the case that you retire during a market downturn, when the LIFETIME return on your investments is likely to be horrible and insufficient.

    Um, if a market downturn significantly affects your retirement, then you are a dumbass for still being in the market past age 40.

  • Chad||

    So I am supposed to pull my money out at 40, in case the market crashed when I am 63?

    Hmmm...how am I supposed to get much of a return, then, because by 40 I really won't have that much invested.

  • #||

    no you are supposed to be phasing into more fixed income investments as you get older. When youa re 60 you shouldnt be anymore than 20-25 percent in stocks. Also the compoentn of SS that pays for disability is in additiont ot he 12.6 percent. The full FACA tax is 14 percent. Id gladly keep the disability party if you let me keep my 12.6 percent.

  • #||

    and even if you were going to have retirment "insurance" than it should be means tested... therefore an event has to happen in order to collect. Paying everyone something for a forseeable event is not insurance. Its shitty compulsury low yield pension program where the terms of the agreement can be changed at any moment.

  • JoshINHB||

    "SS protects you in the case that you retire during a market downturn, when the LIFETIME return on your investments is likely to be horrible and insufficient. It also protects you in the case that you become disabled, or other circumstances conspire to throw you into poverty. "

    Then call it welfare and determine the benefits and funding mechanism accordingly.

    Of course anyone that tries be honest about it is called an asshole.
    http://politifi.com/news/Reid-.....49982.html

  • Paul||

    It's not social insurance. It's a social-guarantee. And it's structured exactly like a Ponzi scheme.

    The only difference is that it's structure is out in the open, and it's backed up by 'endless' general fund revenues.

  • Paul||

    *its structure*

    Joez law?

  • Otto von Bismarck||

    Social security is social insurance against the lesser sort rising up against the Emperor.

  • ||

    SS isn't really an individual retirement plan, but social insurance.

    I tend to think everyone should be given the same benefits regardless of how much they put in. Give each person enough to live on when they can't work, but only enough. They don't need a luxurious (comparatively) lifestyle. If they need to sell their home or other assets (ok maybe there could be exemptions) because they can't maintain them, then so be it.

  • ||

    I also realize this is probably not politically feasible and not what SS was intended to be initially anyway. The main thing is that this is one thing that *really* needs to be revisited, but nothing will be done without support from *both* parties.

  • ||

    do you have any initiatives I should be backing as a Seattle voter?

    The only one I know of that's made the ballot is I-1100, which will privatize liquor sales. There's also I-1105, which does the same thing, but I'm voting against it because it still maintains a large amount of state control.

  • ||

    I've heard about these, and I'll be sure to vote on both. Thanks for the info!

  • AA||

    Me too

  • Chad||

    You hand over 12.4% of your income. You get 12.4% of your kids and/or grandkids income. It's fair, efficient, and orders of magnitude less risky than the markets.

    Depending on which years you happen to live, the lifetime return on your investments can vary incredibly wildly. SS varies hardly at all. We need a mix of both.

    Btw, unless you are earning >$50k or so most of the time, SS beats the market anyway. For the middle class, it breaks even. It is only those paying at or near the cap who get poor returns (around 0% real return).

    The problem with saying "this department shouldn't exist" is always the explanation of "and then what"? If you want to cut, say, the Department of Education, how do you plan to pay for special ed, or fix the schools that were formally being fixed with DoE money? Do you dump these costs on the states, and would this gain us anything? Or do you dump it on individuals? Either way, the cost is still there.

  • ||

    government could be doing MUCH more with MUCH less.

    Let's take CA for example, during the 60's and 70's we built world class unversities, highways, and public schools. Now we can't even maitain them, and yet we spend more now than we did then.

    Giveaways to the unions, combined with government bureaucracy, is bankrupting the states.

  • Chad||

    I disagree with your "MUCH"es, but agree with the sentiment, at least at the state level. This is largely because of the pension issue. Remember, however, that the reason it was so easy to build that stuff in the 60s and 70s is that by not fully funding the pensions, the citizens of those times were dumping costs on their kids. We now have to pay for both what our parents didnt pay for AND everything new.

    The pension problem is nowhere near as big at the federal level.

  • Jordan||

    You hand over 12.4% of your income. You get 12.4% of your kids and/or grandkids income. It's fair, efficient, and orders of magnitude less risky than the markets.

    I will never see a dime of SS. Fuck you.

  • Chad||

    Are you not an American who has put in his or her 40 quarters?

  • West Texas Boy||

    Chad, did you not put your teeth under your pillow when you where 6 and find a dime the next day?

  • ||

    Chad (real or fake) writes: "You hand over 12.4% of your income. You get 12.4% of your kids and/or grandkids income. It's fair, efficient, and orders of magnitude less risky than the markets."

    That's the very definition of Ponzi scheme.
    But keep calling it "ice cream" if it makes you feel better.

  • BakedPenguin||

    So, what are you going to cut? Be specific and use real data.

    Corporate welfare. Stop all transfer payments to profit making businesses. This includes small business loans, "family farm" subsidies, as well as the massive payments to other corporations. Finally, declare an end to "too big to fail."

    As OM stated, end the standing army, or radically decrease it's size. To defend the US, the National Guard and Army Reserve are sufficient.

    End Homeland Security. End the DEA and the drug war. End the BATFE - alcohol, tobacco and firearms are legal, and police can deal with illegal use of explosives. End the Department of Energy. Remove the Census from the department of Commerce, and put the Statistical division of the DoC up for sale - it produces some good quantitative analysis that companies would - and should - pay subscription fees for. S&P, Bloomberg, or other similar companies would be eager to purchase them.

    Admit that Social Security is not a retirement plan, it is a welfare scheme. Raise the full retirement age to 70 and introduce a means test. Also, introduce a sliding scale to deal with what everyone already knows - people who are 40 or younger aren't going to see a dime from the program. People 41- 70 will get a percentage (at retirement age) based on how close they are to retirement currently, if they pass the means test.

    It's important to clearly state that benefits will be reduced, along with the point that people 40 and younger are going to have to find private sector equivalents to save for retirement.

  • Chad||

    . Stop all transfer payments to profit making businesses. This includes small business loans, "family farm" subsidies, as well as the massive payments to other corporations

    Transfer payments are chump change. Most subsidies take the form of tax breaks. "Too big to fail" was not the problem, as waves of smaller units could and have collapsed in the same manner. Too bad you tea-baggers can't think in sound-bites bigger than four words, though. The core problems were agency and leverage, not TBTF. In any case, all three require evil awful regulation in order to fix them.

    And I love your defense plan, Neville. Should we invest in French white flag companies while we are at it? It would have made us a killing the last time we tried your plan.

    At least I agree about the drug war. That's on my list, along with farm subsidies. You seem to be suggesting that we just dump these costs onto the states, which I fail to understand as a budget-balancing tool. You are just reshuffling chairs on the deck, aren't you? And remove the Census? wtf?

    SS IS a retirement plan, and a darned good one. It is a much more efficient system of transfering money from current workers to retirees than the market is. It has basically zero overhead, and is very low risk. The return on your stocks, however, can vary by a factor of three or more over your entire lifetime depending on how the market does over the particular years you are investing heavily. That is far too risky for most people to have most of their retirement money. You are right, though, that there is a "welfare" element to SS. It does indeed transfer a portion of its income from richer retirees to poorer ones. Grow up and get over it. We could probably slide the retirement age back a bit, but not as much as you would like. You guys seem to mistake living longer with being healthy longer. They are not equivalent. Just because we increase the average lifespan from, say, 75 to 77, does not imply that 67 year olds are now as healthy as 65 year olds used to be. Far from it, in fact.

    And since you haven't touched health care, you left the biggest dog un-touched. Go figure. We will sure need it when WWIII breaks out.

  • ||

    "SS IS a retirement plan, and a darned good one. It is a much more efficient system of transfering money from current workers to retirees than the market is. "

    That's the whole problem, we don't need a system to transfer wealth from workers to retirees. People should SAVE their own money and then retire.

    Me not being totally heartless, I would probably be ok with some type of means tested system to keep Grandma and pa out off the the streeds. But the current system is bullshit.

  • Chad||

    I should have said "goods and services", not money. But either way, SS is an elegant, cheap, and fair way of ensuring everyone has a basic retirement that is guaranteed.

    Your plan of requiring everyone to play against Wall Street SuperComputing Hypertraders (and almost always lose) is simply unworkable.

    Btw, the *real* return on 401k's for average people is terrible, a couple of percent less than "market" returns. Of course, it is really hard to even figure out what your return on your 401k even is. Only a math geek who carefully records all of his contributions, and never loses them or has them deleted, can even know how much he has earned. Your 401k provider only has to keep records for a couple years, and the records are pitched any time you switch jobs or 401k providers.

  • ||

    You should go read "The Intelligent Investor" by Benjamin Graham, especially chapter 9. Finance theory has been saying for only about 60 years that it is difficult or impossible for professional investors to beat the market over the long term without insider information, which fund track records reflect. It's as easy as getting yourself a low cost total stock market index fund, a low cost index bond fund, and the lowest cost international exposure you can get. If I can explain this stuff to my mom, who is very math averse, anyone should be able to get it.

    Furthermore, if people put half as much time educating themselves about personal finance and retirement strategies as they did watching movies the chump saving for retirement would be much more savvy. Am I supposed to feel bad for people who are too lazy to plan out their own financial future?

  • BakedPenguin||

    This always gets me - so many people absolutely refuse to learn anything about investments. I can understand not relishing the idea of learning about stocks and bonds, but considering its importance, they could pick up a copy of Retirement for Dummies at the local library.

  • Tony||

    This always gets me - so many people absolutely refuse to learn anything about investments. I can understand not relishing the idea of learning about stocks and bonds, but considering its importance, they could pick up a copy of Retirement for Dummies at the local library.

    So you expect the vast hordes of serfs under your system to have the leisure time to educate themselves on investing? I suspect you're not in favor of a government bureaucracy to ensure universal access to this knowledge. Or the knowledge of reading for that matter.

  • Tony||

    Am I supposed to feel bad for people who are too lazy to plan out their own financial future?
    reply to this

    Nobody cares how you feel. The question is whether you think it's just to condemn people to old-age starvation for the crime of being lazy (or unlucky).

  • Chad||

    Yes, it is "easy" to buy a mutual fund. It is NOT easy to NOT sell your stock fund after a crash, and buy back into it when it has mostly recovered. And note that this behavior isn't irrational. People who are investing substantial portions of their life's savings, which they will be dependant on someday, rightly become risk-averse after a crash, even if logically they should be making even bigger bets because the prices are low. Only those playing with oodles of other peoples' money can afford to double down.

    You are right, though. No one beats the market without some sort of inside connections....which is precisely why the average Joe shouldn't be competing against those who do have their vampiric blood funnels stuck down the throat of the markets.

  • Amakudari||

    Seriously, we're still stuck on the efficient market hypothesis? Given the May 6 flash crash, the fact that old GM's (i.e. some parking lots, a 9-hole golf course in NJ, and asbestos claims) still trading at a market cap of $200 million, and that several people in finance do regularly beat the market. The most comprehensive studies I've seen of hedge funds show there is some alpha left over for investors after fees (mostly obviously true with arbitrage funds).

    I agree that most people can't beat the market, but that's because the market's irrational ups and downs emanate from herd behavior, and they're the herd. For most, index fund investing is by far the best solution (and it's mine). But this is definitely not due entirely to insider information. (And if you want an example, Burton Malkiel, author of A Random Walk Down Wall Street, which declared that no one can beat the market, just started a hedge fund.)

  • Chad||

    The most comprehensive studies I've seen of hedge funds show there is some alpha left over for investors after fees (mostly obviously true with arbitrage funds

    And that "some alpha" is likely either inside information, or the classic "picking up pennies in front of a steamroller" trick.

  • Chad||

    Oh, and thanks for conceding that markets are NOT efficient.

    Every trader out there is working hard to prove that conservative ideology is wrong.

  • Amakudari||

    First off, I'm not "conceding" that markets have inefficiencies. I've never believed that, only that markets are generally better at allocating capital than other mechanisms. Most people in my industry, finance, would agree. It's hard to find economists who believe in the Usually Pretty Good Market Hypothesis, though. (FWIW, I'm back in school in Tokyo getting an MS, my total salary in San Francisco was always near or less than the city median, and I've never been bailed out.)

    On the note of alpha, no, the best studies IMO (from Yale's Ibbotson) look at returns from 1989-2009, depending on which paper you're reading. There have been more than enough failures to ferret out the nickel-picker-uppers, and he adjusts for survivorship and backfill bias. Since many of the persistently successful hedge funds tend to be mid-sized, and alpha tends to exist in all hedge fund sectors, I really think you'll be hard-pressed to say it's due to inside information. On the other hand, he finds that despite the 2-and-20 comp scheme, actual compensation for alpha tends to be closer to 50% (hardly shocking).

    It's probably a comfortable thing to think if your worldview depends on it, but frankly, it would shock me if finance is the only industry on the planet where extraordinary competence could not yield better-than-average results. The number of dumb stock jockeys out there does not in any way affect my view that there are also some smart, savvy financiers.

  • ||

    Yes, it is "easy" to buy a mutual fund. It is NOT easy to NOT sell your stock fund after a crash, and buy back into it when it has mostly recovered.

    No, actually it's less work than running around like a chicken with your head cut off.

  • West Texas Boy||

    It's as easy as getting yourself a low cost total stock market index fund, a low cost index bond fund, and the lowest cost international exposure you can get.

    Quit looking at my portfolio!

    Seriously, this is absolutely 100% correct. Betting on individual stocks is kind of fun when you have money to burn, but for serious savings you need to just ride the averages.

  • Amakudari||

    Of course, it is really hard to even figure out what your return on your 401k even is. Only a math geek who carefully records all of his contributions, and never loses them or has them deleted, can even know how much he has earned.

    Haha?

    Seriously, my company lets me see the internal rate of return on my investments, as well as what the market portfolio's return was. I can call up the plan administrator for detailed documents. If I don't like that system, I can roll it over into an IRA with a company I do like. If I don't know the exact calculation, I can visit a financial planner. If the main impediment is requiring people to keep their paperwork, then I have no idea how they'd figure out their "return" on Social Security.

    As for return, I'd expect to be a bit off (basis points, not percentage points) the "market portfolio" simply because of transaction costs. That's true for everything I have in my 401k, because they're all index funds.

  • Chad||

    And what happens if you get laid off tomorrow, amakudari? Better hope you offloaded all that data to your private computer. Oh, and what happens when your company decides to switch to administrator A to administrator B? Better grab your data quick, because it gets deleted. Trust me on that. Administrators are not required to keep the data indefinitely, so it's really up to the individual to keep track of. Few of us do this. 99.9% of people have no idea what their real return is unless they have a good administrator and haven't switched jobs, done roll-overs, etc.

    In my current 401k, EVERY option costs at least .7%. Every damned one. But that is not what I am talking about. In reality, average Joes are terrible investors and often buy high and sell low. This is just a fact, and you damned well need to find a way to deal with it, rather than just pretending it is not a problem.

  • Amakudari||

    And what happens if you get laid off tomorrow, amakudari? Better hope you offloaded all that data to your private computer. Oh, and what happens when your company decides to switch to administrator A to administrator B? Better grab your data quick, because it gets deleted. Trust me on that. Administrators are not required to keep the data indefinitely, so it's really up to the individual to keep track of. Few of us do this. 99.9% of people have no idea what their real return is unless they have a good administrator and haven't switched jobs, done roll-overs, etc.

    What? The company I'm talking about was acquired, so we switched plans. Then the plan we switched to switched all of its offerings. I then left the company. A few months afterward, I called them for some paperwork because I plan to roll everything into an IRA, and I got all of what I wanted.

    Moreover, the main reason for wanting historical performance data is to evaluate my fund options. If the options have changed that information is less relevant, anyway. (My most important insight from the data was, "damn, Lazard's doing a crappy job." So I have no current Lazard funds.)

    In my current 401k, EVERY option costs at least .7%. Every damned one. But that is not what I am talking about.

    Seriously? There are no options I have greater than 0.6%, with the exception of an emerging markets one. Index funds should really all be below 0.5%.

    In reality, average Joes are terrible investors and often buy high and sell low. This is just a fact, and you damned well need to find a way to deal with it, rather than just pretending it is not a problem.

    I agree, and 401(k)s do a fairly good job of this by setting up regular transfers to funds that have been vetted, with punitive assessments for people who withdraw early. People worry about their 401(k), but the main mechanism I've seen for dealing with losses is that people don't open letters about performance. If the alternative is having them freak out and go to cash, that's a good thing.

  • Amakudari||

    FYI, if you really have terrible choices, you might want to consider an IRA. The main benefit of a 401k is that larger companies can demand rebates from fund companies, but if yours isn't, don't deal with that crap.

    Heck, the original reason for me requesting 401(k) docs is because I'm ticked off that they switched my target retirement fund to one that's internally managed with double the expense ratio.

  • Chad||

    I work for a small company (you know, the ones every conservative brags about constantly, as they serve their megacorp overlords). We don't have leverage. My "choices" are to pay between .7 and 1%. I believe in theory that I can roll over the employer match portion (not my contributions) into an external IRA once I am fully vested. That's only a minor help at best.

  • Chad||

    You are missing my point. Sure, it may be *possible* for me to call the former administrator of my former employer and argue about getting a list of contributions and dates (I don't need to, because I had them saved at home). Rather, it is that 99.9% are never going to do something like this, and hence will not know their ROI. It should be mandated BY LAW that each account have this number prominantly displayed on the front page, and that this data move from administrator to administrator during roll-overs. You libertarians would never want this, because people would indeed "freak" when they saw the pathetic return they have really gotten.

    Btw, my lifetime return is substantially negative, despite the fact that I have practiced the buy-and-hold of a diversified portfolio that everyone preaches.

  • Amakudari||

    You libertarians would never want this, because people would indeed "freak" when they saw the pathetic return they have really gotten.

    Hahahahahaha, seriously, you really think I have some ideological aversion to letting people know what their IRR is? I'm not some fucking 401(k) sycophant, and I know it's not the best system around. Frankly, I think people should be allowed to do things like pool assets outside of the company for a ton of reasons: 401(k)s are a direct subsidy of the mutual fund industry, agency problems are rife ("vote your shares for management's board slate and we'll give you our business"), and small companies don't really benefit, as you pointed out.

    (I should, however, note that when you accept a job, their retirement system is among the benefits you should consider. Small companies tend to offer less lavish benefits because they don't have leverage. It's your choice. I picked my initial employer because the lower salary was offset by pretty good benefits in a high-expense state, all of which went away post-acquisition.)

    Btw, my lifetime return is substantially negative, despite the fact that I have practiced the buy-and-hold of a diversified portfolio that everyone preaches.

    As are a lot of people's, pretty much everyone from the mid-90s onward, because we had two market peaks that had people buying much higher than where we are now. But those are returns over 15 years, and we should be concerned about returns over 40-50 years. Despite the crap market, people who put money into a good *cough*Vanguard*cough* S&P index fund in 1980 (the first year 401(k)s were available) and contributed the same amount each month thereafter had a 185% return, including 900% on the first dollar. (And, of course, there's no capital gains tax.)

    Honestly, the only monitoring I've done of my 401(k) is whether my investments track their target indexes, and whether the expense ratios are egregious.

    Another side note: if you contribute before-tax dollars, even a 401(k) that doesn't make good investment returns can still be profitable. The reason is that you exchange your marginal tax rate when you contribute with the marginal tax rate when you draw on the 401(k) in retirement. Thus, if the amount you receive in retirement before drawing on your 401(k) (Social Security, other income) is less than your taxable income right now, you're still getting an income-tax subsidy, especially if you ultimately move to a state with a lower income tax. Ah, tax avoidance, the fuel of Florida.

  • Chad||

    One would think that with a name like "Amakudari", one would realize that minimal or negative life-time returns are quite possible in the market. Just ask any Japanese who was investing back in the 80s...and likely, any of those post-90s Americans. Our market could very well following a track much like theirs.

    And the idea that my tax rates will be lower when I retire than they are today is downright silly. They will almost certainly be higher.

  • Amakudari||

    One would think that with a name like "Amakudari", one would realize that minimal or negative life-time returns are quite possible in the market. Just ask any Japanese who was investing back in the 80s...and likely, any of those post-90s Americans. Our market could very well following a track much like theirs.

    In the long run, Japan can't afford any of its retirement schemes, be they government pensions, corporate pensions, etc. without significant sacrifices. Japan's stagnation was engineered by piss-poor monetary and fiscal policy, but that doesn't change my point that individuals should have a significant stake in ensuring their financial well-being if they want to stop working.

    Japan's never had a meaningful 401(k) provision, so individual retirement investors in stocks don't really exist. Is this good? Well, many of those losses were merely shifted to corporate pensions, and to the extent that corporations were propped up by government gifts, taxpayers. In societal terms, economic growth affects ability to provide generous retirement benefits, and pushing management of these obligations to whomever doesn't change that. Despite the lack of direct losses to individuals, under 116% net debt/GDP, rampant deflation and rapid aging, retirements are at least as fucked as if stock market losses had been borne by individuals. I'd argue much more, because the government palliative (and future taxpayer losses) were bridges to nowhere and subsidized zombie banks.

    And the idea that my tax rates will be lower when I retire than they are today is downright silly. They will almost certainly be higher.

    1. Sherlock, even if all tax brackets are higher, what matters is which tax bracket you're in. Let's say you have two sources of income in retirement: SS and your 401(k). Let's say you get $15,000 per year via SS. Now, let's say your annual salary is $60,000 right now. If the marginal tax on that future $15k is less than the marginal tax on your current $60k, you can realize have tax savings. My marginal tax in California was 34.3%. Unless the marginal tax on income after SS is higher than 34.3%, I come out ahead.

    In other words, if I think the 60,000th dollar I earn today is taxed higher than the 15,001st dollar I'll earn in the future, I should consider doing things after-tax. As you contribute more and more, the benefit of course goes away (and can go negative if your total retirement income is higher than your total working income).

    The point is that all of your future 401(k) income comes from current marginal income. It's similar to how if you defer income to the next year and then go back to school, your marginal tax will shrink. Basically, there is an embedded tax break in 401(k) law separate from capital gains taxation.

    2. Besides, if you're still sure of yourself, you can still get a tax "benefit" by making after-tax contributions, anyway.

  • JohnD||

    You roll your 401K into an IRA or another 401K with the new company you work for. .... Also, if you are vested in the 401K, the company by law, has to provide access to view the fund.

    Besides, most companies don't manage the 401K themselves, they turn it over to a financal insitution. That institution will give you access to your 401K.

  • Chad||

    Actually, I DIDN'T roll over my IRA from a previous employer, precisely because the former employer was bigger and therefore could negotiate better administrative fees. I suspect that money will be there until I retire 30-odd years from now.

  • ||

    "Transfer payments are chump change."
    TARP wasn't chump change and that was just one program of wealth transfer.

    "It has basically zero overhead, and is very low risk"
    Every employer I know considers office employees as overhead. Does the Government not have to use this classification? As far as risk, if the "benefits" keep changing (i.e. getting lower), wouldn't that qualify as a risk?

    "too risky for most people to have most of their retirement money"
    Do you mind if I make that decision for myself?

  • Chad||

    SS benefits haven't changed at all. What are you talking about?

    They might have to change a bit in the future, but this can be handled mostly with tweaks to the way that they are indexed. SS is not really in that bad of shape.

  • Soonerliberty||

    How do you spell delusional? G-R-E-E-C-E!

  • BakedPenguin||

    Too bad you douche-baggers can't think in anything but bumper sticker slogans. TBTF was the reason they engaged in those risky investments, and got over-leveraged. They don't require regulations to fix, they require having people deal with the risk they take on. Funny that Obama, who has puled about "deregulation" deregulated the mark-to-market rules put into place by... the Bush administration.

    Most of the Dept. of Commerce is corporate welfare. The Census should be a stand alone department. Any legitimate interstate commerce issues could be dealt with by the non-welfare portion of the DoC.

    Yeah, the US spends more than what - the next fourteen nations combined on defense? Oh, but cutting that by 50 or 60% will cause WWIII? I don't recall saying anything about dismantling our nuclear arsenal. Who's going to attack us? Mexico or Canada? China has figured out that trading is more worthwhile than fighting. Where is the threat? Radical Islam? We can keep bases with skeleton crews in Turkey and one of the least corrupt Central Asian states to provide staging areas if need be.

    Dump costs onto the states? What costs? What the fuck are you talking about?

    SS is a fucking Ponzi scheme, and it's completely untenable. Have you seen the actuarial estimates? It can't work. It will run out of money. Also, it is a welfare scheme that transfers money in the opposite manner than you would have it. It takes from the poor and gives to the rich. The ~$80k cap on taxes means that millionaires pay the same as the middle class and a little more than the poor, but they get the same amount when they retire. Furthermore, it takes money from poor, working class, and middle class working people and gives it to wealthy retirees. I would have thought a progressive like yourself would recognize that, but you're just too in love with a government program to give a shit. And zero overhead? You have to be trolling, or you've never stepped foot into a local SS office.

    I didn't mention health care, because I thought it had been addressed well by other posters. Move Medicare towards a high-deductible insurance model, and have people absorb more of their annual health care costs.

  • Chad||

    BP, you clearly have no idea how SS works. How the bleeping hell can it "run out of money", unless our grandkids magically stop earning any incomes? I quadruple-dog dare you to explain.

    Now, it could run short of money someday. In other words, 12.4% of our grandkids' earnings would not be sufficient to pay 100% of the benefits that we promised ourselves. Given no changes at all, this would happen sometime around 2040. But this doesn't mean we have to cut SS to zero, but rather by a quarter. It doesn't get worse after that, but pretty much stabilizes.

    http://www.ssa.gov/OACT/TRSUM/index.html

    Furthermore, it takes money from poor, working class, and middle class working people and gives it to wealthy retirees.

    Either you are mathematically inept, or you have never bothered to learn how SS benefits are calculated. Please explain "bend points" to me, to prove that you have done your homework. Once you understand this concept, you will understand why they poor get an awesome ROI on their SS contributions, the working class a pretty good ROI, the middle class an mediocre ROI, and the upper-middle/rich a rather pathetic one. All by design, of course.

    We can cure this shortfall any number of ways, none of which are terribly drastic.

    You are almost right about Medicare, but not quite. We don't need high deductibles, we need high co-pays. I suggest you look into the health care systems in Singapore and Japan. They are essentially "high co-pay with an annual cap, for everyone". Their systems work pretty darned well, and they spend far less than we do, for better results. The one thing you don't want to do is have people "shopping" for insurance, which just leads to adverse selection and insurance companies dropping the sick any time they can come up with an excuse to do so. The only way to defeat adverse selection is to insure everyone all the time, which is what everyone else on earth figured out long ago.

    I don't recall saying anything about dismantling our nuclear arsenal

    Several of you guys called for eliminating Dept of Energy. Do you think magic pixies are going to maintain our nukes?

  • Jason||

    Chad, James Loewen has a section on how Social Security benefits the wealthy in his book Lies My Teacher Told Me.

  • ||

    Fair enough! Here we go:

    Department of Agriculture:

    * Eliminate Food Stamps and all other welfare payments. In the 21st century, there is no excuse for a parent not earning enough money to pay for his child's food. If the parent refuses, the state takes custody. Either way, it's not a Federal responsibility.

    Savings: $91 billion.

    * Eliminate crop subsidies. Nuff said.

    Savings: $8 billion.

    * Eliminate subsidies to rural broadband initiatives and other "development" assistance. Pay for your Internet pr0n yourself, yokels, or do without.

    Savings: $3 billion.

    * Eliminate marketing operations. I see no reason for the Feds to spend money promoting American rice in Korea. Let American rice growers pay for such advertising, if they think it's worth it.

    Savings: $1.3 billion

    * Halve the R&D budget. There is very little need for Federal support of research into food and animal husbandry. Let Perdue pay for his own research into making a more tender chicken -- since he'll reap the profits thereby.

    Savings: $1.4 billion.

    Department of Education:

    * Eliminate K-12 grants to states. This is a state responsibility.

    Savings: $50 billion.

    * Eliminate ARRA ("stimulus") spending.

    Savings: $20 billion.

    We'll leave Pell Grants alone but redirect them to be merit-based, and we'll leave student loans alone on the grounds that they are usually repaid eventually.

    Department of HHS:

    * Adjust qualifications for Medicaid so as to halve outlays. Once again, in the 21st century there is no excuse for an ordinary non-disabled average-intelligence adult not to be able to earn enough money to pay for his own health care, and if he refuses, let him ask for charity for his neighbors, or do without. But leave in the remaining 50% of spending so we don't cut off the truly desperate cases -- the retarded, paralyzed, or terminally ill.

    Savings: $130 billion.

    Department of Homeland Security:

    * Eliminate the TSA. There is no rational reason for this agency to exist. The FBI, local law enforcement, and Federal marshals all have jurisdiction enough to handle terrorism. Airline safety should be up to airlines, who can hire private contractors as they see fit. We don't expect the Feds to guarantee our safety on a railroad or in a cab, so there's no reason to expect it in an airliner.

    Savings: $5.7 billion.

    * Eliminate FEMA. Public safety in a disaster is a local and state responsibility, or the Coast Guard if it happens offshore, and the government should not be trying to guarantee the incomes of people suffering disaster, i.e. it shouldn't be in the disaster insurance business. That's what insurance companies are for.

    Savings: $7.3 billion.

    Department of HUD:

    * Eliminate all housing assistance. See above: if you're an able-bodied adult in the 21st century, you pay your own rent or you live in a cardboard box, and if there is to be charity, it's a state and local responsibility. There's no reason Montana taxpayers should help pay the rent of a New Orleans crack addict who can't hold down a job.

    Savings: $38 billion.

    Department of Justice:

    * Eliminate the BATF and DEA. No war on drugs or on the Second Amendment.

    Savings: $3.3 billion.

    Department of Labor:

    * Eliminate all job-training grants and unemployment insurance. Not the Feds responsibility.

    Savings: $93 billion.

    Department of State:

    * Eliminate international drug war funding.

    Savings: $2.1 billion

    * Reduce foreign aid by 50%, except that directed to public health and children (e.g. malaria, AIDS).

    Savings: $10 billion.

    Department of Transportation:

    * Eliminate all ARRA ("stimulus") boondoggles, high-speed rail, et cetera.

    Savings: $17 billion.

    Department of the Treasury:

    * Eliminate more TARP spending.

    Savings: $11 billion.

    EPA:

    * Eliminate ARRA boondoggles:

    Savings: $2 billion

    Eliminate AmeriCorps

    Savings: $1.4 billion

    --------------

    Grand total savings: $514 billion, which reduces the deficit by 40%. And notice I have not touched defense, veteran's services, Medicare, Social Security, the FAA or NASA or NOAA, college financial aid, Federal support of basic research, national parks, or any traditional law enforcement or regulatory agency -- none of the political third rails or "Washington Monument" stuff.

    I am sure there's plenty of stuff there that could be lopped off, too, to bring the deficit down to zero.

    de Rugy, despite her pathetic lack of an attempt to be specific, is quite right: the only reason the deficit exists is because Congress is unwilling to make even mildly annoying choices, let alone truly painful choices.

  • Chad||

    Now, add in the approximately $514 billion in costs you just dumped onto states, and we have gotten precisely.....nowhere.

    I love your idea to eliminate the EPA, which probably saves us ten times its cost in health-related issues alone. You do realize that air pollution, for example, does $120 billion in damage to the American public even AFTER everything the EPA has done. It was far worse before.

  • dantealiegri||

    Chad, you asked him to be specific, so you should be as well. How does it add it.

  • AA||

    Nice. +10

  • JohnD||

    Carl, I like the way you think.

  • The Libertarian Guy||

    Cut everything, Chad.

    Honestly, the tax hike from 34% to 39% is like giving a panhandler forty cents, then the fucker chases you down and demands another nickel. Petty bullshit.

  • Soonerliberty||

    I'll take a stab. Cut government. There, just saved us over four trillion a year in destroyed wealth plus deficit wealth destruction.

    Now, where is my whiskey?

  • Robert||

    Our local US Census office came in far under budget for census taking accidentally, simply by assigning work to only about 2/3 of the census takers we trained. I'd've thought that to have been a waste of money on training, and would've guessed that the work would've cost us just as much, thinking that the job would take a certain number of man-hours that would be constant regardless of the "man" factor -- but apparently my guess would've been wrong. I'm told the savings of money was unplanned, the result of just neglecting to call a lot of people.

    If this temporary office of fedgov can save money like that by accident, imagine how much could be saved by the permanent offices on purpose.

  • Robert||

    So let's keep it simple, because it'd probably work across the board like that: Simply cut 1/3 of the staff, or their hours, for all gov't employees.

  • ||

    Could we maybe cut the hours of the US Congress by 3/3?

  • The Libertarian Guy||

    Cut their hours by 4/3. Make the fuckers PAY to work.

  • PR||

    I've often wondered how much of the budget is government salaries, benefits, and bonuses.

  • Robert||

    Why wonder? Can't you just look that up?

  • ||

    What to cut?

    The military budget, by closing most of our overseas bases.

    Close the following departments:

    Education
    Labor
    Housing and Urban Development
    Transportation
    Energy

    Any of their functions that are necessary for the facilitation of interstate commerce can be consolidated into the Commerce Department.

    Raise the Soc Sec retirement age, and cut off participation in it for anyone born after January 1, 1995 (they haven't entered the workforce yet, so you can't say they are relying on it for anything).

    Eliminate federal requirements for state Medicaid programs and phase down federal Medicaid funding.

    Turn Medicare into a voucher program sufficient to pay for a catastrophic care policy.

    That ought to do it. Remember, to balance the budget, you just have to do is roll it all the way back to where it was in 2003 or 2004. Those cuts probably go well beyond that, so you can package them with a nice tax cut.

  • ||

    Pretty much agreed. The only thing I would add is that you would still need to end heroic end of life care. Spending a couple hundred grand to extend someone's life by 6 months is not worth it (not if it's tax payer money anyway).

  • Chad||

    Who decides what is "heroic"?

    Should we do it like the Brits, and just say X dollars = Y QALY's (quality-adjust life), and call it good?

    And how are you going to handle the cries of "DEATH PANELS!!!" from the tea-baggers?

  • Sudden||

    Simple, by saying: "If you wish to extend your life further past the point of any real sanctity so that you can continually shit yourself while bitching about the food at the local deli where you eat dinner at 3 P.M., you are more than welcome to use your own financial means to continue your sad existence that consists of unpleasant moments with adult grandchildren and time spent in smokey Indian casinos. However, we will not be footing the bill for you. If you should wish for end-of-life services, we have a list of approved providers who can painlessly whisk you into the wonders of afterlife where you can bask in the glow of your Creator."

  • Teabagger||

    Git yer guvernment hands off mah medicare!

  • Douchebagger||

    Medicare and Social Security are completely safe! Forever and ever and ever and ever! And anyone who disagrees is a big meanie who wants old people to die on the streets!

  • ||

    (they haven't entered the workforce yet, so you can't say they are relying on it for anything).

    The problem is, the system is relying on them. Or would you have them pay into the system with no hope of ever getting paid from it?

    (I know that's what us younger workers are already probably doing, but just wondering if you want to make it explicit)

  • Chad||

    If nothing changes, today's young people would still get the solid majority of their promised benefits. It's amazing how many have been scared into believing the entire system is going to fail.

  • Sean W. Malone||

    That's pure idiocy, Chad and I suspect you know it. But whatever...... *eyeroll*

  • Chad||

    No, Sean. It is fact. Do you think our grandkids won't be making any money to pay our FICA benefits with?

    True, they won't be making quite enough to pay 100% of our promised benefits without a modest tax increase, but even without a policy change, at no point would they fail to provide at least 70% of what we would need, with current tax rates.

  • ||

    You aren't using late 90s earnings figures to make that projection, are you? As a great maverick once said, those jobs aren't coming back my friends.

  • Chad||

    No, I used last year's trustee's report.

    http://www.ssa.gov/OACT/TRSUM/index.html

    You guys just refuse to believe that SS is working and will not fail catastrophically under any realistic circumstance (and in any case, those circumstances would screw the market as well).

  • Soonerliberty||

    You trust gov't data? The same people who give us the fed? The same people who said everything is fine and that here is no bubble? The same people who were giving BP an award just one month before the spill? Wow, you really are naive.

  • Chad||

    No, I used last year's trustee's report.

    http://www.ssa.gov/OACT/TRSUM/index.html

    You guys just refuse to believe that SS is working and will not fail catastrophically under any realistic circumstance (and in any case, those circumstances would screw the market as well).

  • Sean W. Malone||

    And really, what's a "modest tax increase" here, and another there and hell why not run it up to 100% at some point because ya know what, the pyramid is about to flip anyway what with baby boomers retiring and by god, they promised themselves future money stolen from young wage-earners fresh out of over-priced colleges.

    Now that I think about it, you seem woefully ignorant (or just obtusely avoiding the fact) of the effects that inflation, debt service and ever-ballooning expenses in all the areas in which government is heavily involved & subsidizing people - like college & health care. So when people are paying off their $50,000 government-subsidized college loans at age 22, and they're scrapping it out for a few available jobs in an environment where people A. live longer, B. work cheaper in other parts of the world, C. are punished by the government for starting businesses and D. wages are controlled by the central powers that be, exactly how big of a tax increase do you think they'll be able to bear?

    And how many more times do you need to raise their taxes before you've killed off your golden aluminum goose?

    As far as I can tell, that goose is pretty much plucked already man and vastly more feathers have been promised to people than will ever get them unless some radical steps are taken regarding American economic liberty.

    Oh and btw... that's a prediction.

  • dantealiegri.||

    Taking money from people who can't negotiate is stealing.

  • ||

    I also note you don't mention the budget busting wars in IRQ and AFG where it's not at all clear what we're trying to accomplish.

  • ||

    The fastest, dirtiest way to cut the budget is to cut military spending. Getting out of the foreign-invasion business would be nice, as well, but that's merely a big drop in the military bucket.

    I wonder why $500 billion over 5 years [11th para.] is meaningful, but $250 billion over 10 years [5th para.] is "meaningless?" One is about 1/4 as good as the other; doing both would be a 20% improvement upon only doing the larger of the two.

    "...overpayments by the federal government alone are estimated to be at least $98 billion each year. That’s $500 billion over five years..."

    The cost to recoup those losses would be significant. You'd have to hire competent people [easier said than done] to audit and potentially put them in every single gov't office in the land (and around the world) that has check-writing powers AND completely isolate them from any business influence (i.e., the companies receiving the checks). You'd also have to prosecute people who ripped off the gov't--but most of those people are friends with representatives in gov't. Well, I suppose it would all depend on the integrity and efficiency of the government to supervise itself...oh, right.

  • shrike||

    During the economic crisis of the past 18 months

    Veronica, are you fucking daft? Bear Stearns, Countrywide, Thornburg and others threw the towel in during the summer of 2007!

    Or is that selective Bush memory?

  • shrike||

    oh I get it. Obama has been President 18 months.

    So the crisis of 2007-08 does not count.

    Despite the fact that the S&P has grown from 666 to 1100 under Obama.

    Stupid fucking Bush whores everywhere.

  • Uncle "Cracker"||

    Nope, it doesn't count. Congress, which does the actual spending, has been in the hands of brain-dead commie Dimrat fags like Pelosi, Frank, and--oh yeah--your 0-Messiah since the 2006 elections. It's you Dimrats' baby now and you've got to rock it.

    Ooh! A stock market's nominal value went up! Who gives a damn? The unemployment rate's astronomically high, the money's too inflated for any real gains to occur, and the only people doing well in this "recovery" are fat-cat 0bama allies sucking on the corporate welfare teat. This economy's a bitch for everyone else.

    So how's it feel to be losing ground to people with working brains, you brain-dead Bush-bashing 0bama fellator?

  • shrike||

    I sure hope nobody ever finds out about this chart.

    Oops! Did I say that out loud?

  • The Libertarian Guy||

    shrike, will ANYTHING ever be Obama's fault? Or is he going to get a pass, no matter what he does?

  • shrike||

    Cracka is another dumb Bush redneck.

    I fucking care about a 40% rise in the SPYder!

    Asshole!

    And no one in Congress 2007-08 slipped anything by the Bushpigs!

    (well except for the CFTC Enron loophole)

    Cracker ass! Don't come bak here again, you stupid shitstain!

  • Soonerliberty||

    Bush and Obama are brothers. Just look at the ears! You're all a bunch of thiefs and murderers, not matter what color you choose, team red or team blue. Open your eyes, mensch!

  • The Libertarian Guy||

    What a racism-laden rant, shrike. You should be ashamed of yourself.

  • ||

    Tony---"The economy is an extremely complex thing"

    Right, so let's regulate it, one size fits all, out of D.C. Sounds good to me.

  • ||

    Tony---"The economy is an extremely complex thing"

    Right, so let's regulate it, one size fits all, out of D.C. Sounds good to me.

  • BakedPenguin||

    With all of the suggestions here, the government would be in the black. I would make one further suggestion: whatever the annual revenue surplus is, use to pay down the deficit. 14% of our current spending is to pay interest on existing debt. When the debt is payed off, taxes can be lowered by the amount of interest payments that no longer have to be made.

  • ||

    Just some perspective:

    US Federal revenue: $4.5G
    US Public debt: $13.2G

    So the ratio is roughly 3. Thus if the surplus was 5%, and we spent all of that on paying down the debt every year, then it would take 60 years to pay off principal.

    And that's not counting interest.

  • ||

    +1

  • BakedPenguin||

    All the more reason to start ASAP.

  • ||

    The point is, those are incredibly rosy assumptions. I'm not sure if we've ever seen the kind of boom necessary to produce a 5% surplus every year for 60 years. All of us will be dead and buried by the time the debt is payed off.

  • ||

    Tony---"The economy is an extremely complex thing"

    Right, so let's regulate it, one size fits all, out of D.C. Sounds good to me.

  • ||

    +1,000,000

  • ||

    Damn. I really need to preview every post, especially inconsequential ones :(

  • D.Brooks||

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  • CE||

    Why is it considered inconceivable to cut spending back to the levels of oh, 8 years ago? Was the government too small then? Remember when a two-trillion dollar budget seemed like a lot? It is.

  • ||

    Yes, cutting federal salaries will cure everything.

    Let's see: there are 1.8M federal civilian employees and 1.45M active military personnel. My googling indicates the average federal civilian salary is $70,000 and average military salary (w/BAH) is $58,000. So federal wage spending is $126B (civilian) + $84.1B (military)= $210.1B total. Let's then cut those salaries by 20% and we get savings of $42.02B per year. The author started off the story telling us that $25B per year is "essentially meaningless," so I guess I don't see how $42.02B is suddenly meaningful. Heck, fire every single federal civilian and and military employee and you'd save $210.1B, which is less than a quarter of the the annual deficit.

    The reality is that the budget busters in the federal budget are medicare, medicaid, and social security. Their rates of increase are staggering and if they cost the same as they did 25 years ago (accounting for inflation), the budget would be more than balanced. Constant harping over federal employee pay complete and utterly misses the real issue. And cutting these three programs will be political painful.

  • ||

    But if we cut spending, how will Cloward-Piven work? Come on, guys--get with the program.

  • Marlon McAvoy||

    There's one other way to make ends meet when you're spending more than you're taking in. Have a yard sale or hit the pawn shop.

    What would we fetch by auctioning off the Hope Diamond? Now multiply that by the rest of the Smithsonian holdings, then add in the sale of a few hundred thousand square miles of land.

    Aww, you don't wanna sell off Grandma's silverware and your comic book collection? Then quit spending more than you make, loser.

  • ||

    We could also raise money by cutting down Obama's golf breaks and have him tour in a fund-raising one-man show, "Mussolini Tonight!" He's already got the Mussolini chin-tilt down pat, and probably no one could deliver one-liners like, "Everything for the State, nothing outside the State, nothing against the State," as convicingly as Buraq. And if he has trouble memorizing lines, we know he's a master of the teleprompter, so that shouldn't be a problem. I can just see the tag-line: "Il Dufe as Il Duce!" I smell boffo box-office, baby!

  • ||

    Cut every public sector job to match private sector pay and benefits. If contracts wont be opened up- fire them and ban public sector unions.

    Cut Agriculture subsidies, cut anything the Pentagon doesn't asked for but Congress saddles them with, means test social security.

    Done, balanced budget.

  • ||

    "The reality is that the budget busters in the federal budget are medicare, medicaid, and social security. "

    Medicare and SS have taken in more than they put out until this year. In the long term, you are right, but it doesn't explain our current huge deficits at all.

  • ||

    Federal Spending (outside the military) can easily be cut by attrition. How about a five year hiring FREEZE and the elimination of duplicate agencies and bureaucracies?

    These criminals in Congress are also incompetent, so we'll not see any of that now until we replace these criminal incompetents.

  • ||

    Push government spending onto state governments (but no mandates) unless there's an overriding rationale not to. Many states have a balanced budget requirement that will force them to cut. This was the Feds won't take the blame.

  • Liberal Genius||

    If Social Security isn't important, why did the Founding Fathers specifically write it into the Constitution as the 0th amendment?

    You libertarians act like Social Security was pulled out of someone's ass in the 1930s.

    It is a beautiful and elegant system. First, the government takes money from everyone who works. Then it spends that money on other things and itself. It mails out checks to some people and the debt is swept under the rug to be dealt with later. Now, no one has to worry about running out of money when they're old.

    In the Dark Ages, people would have to save money themselves or get help from their children or get a pension from their company. The streets were thick with the corpses of destitute old people.

  • ||

    The Government keeps the money in trust so evil corporations won't get their hands on it. It then borrows that money and wisely invests it replacing it with IOUs so the retirees will know they will still get paid.

  • ||

    I'm willing to forego my home mortgage interest and charitable deductions and I think everyone should be. The former has certainly never been empirically shown to increase home ownership and the latter requires we all pay for someone else's moral choice. Those 2 alone could throw in $130B
    (http://www.taxpolicycenter.org/briefing-book/background/expenditures/largest.cfm). There are plenty of other tax expenditures that haven't proven their mettle so toss them as well.

  • ||

    Painfully easy problem to solve.

    2010 budget = #3.55 trillion

    Cut each and every budgeted item by 15%
    Resist the urge to cut any one department a larger percentage than any other. If they all are doing vital Lord's work, they'll simply do 15% less of it this year.

    For 2011 - 2015, cut every department by 2% each year as a gradualy spend down.

    For any new spending bill, in any year, a corresponding revenue bill must accompany it.

    By 2015 government will be doing 25% less of the blessed good works it does now, or at least spending that much less for the crap.

  • ||

    Cut it all.
    That cuts the deficit by 100%.
    Would the change to "no government" carry a cost?
    Sure.
    Nobody claims it wouldn't. Though the fraidy-cats on the left constantly ascribe to libertarians the belief that no government = utopia.
    I've never claimed that.
    I'm just willing to try a different way.
    I am not afraid.

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