Everything is Worse Than We Think…


…when it comes to society-wide savings, as Great Stagnationist Tyler Cowen explained the other day in the New York Times. And yes, now that you ask—is is the gub'mints fault. (That's how we talk here in Hollywood.)

Here's why:

Say that you have $20,000 in Treasury bills. You probably believe that you own $20,000 in wealth. This will encourage you to spend and come up with ambitious plans. Yet someone — quite possibly you — will be taxed in the future to pay off the government debt. The $20,000 may be needed in order to do that.

The illusion is this: A government bond represents both a current asset and a future liability, yet for most people, those future tax payments feel less concrete and less real than the dollars they're holding….

….the sorry truth is that our savings aren't worth as much as many of us think, and a rude awakening is coming. One way or another, some of our savings will be taxed away to make good on governmental commitments, like future Medicare benefits, which we currently are framing as personal free lunches.

Are we broke? Signs point to "yes."

NEXT: Abortion, Liberalism, and Limiting Government Power

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  1. Does it really take a full professor of economics to figure this out?

    1. This just makes me feel better for not wasting the time and effort to get a PhD.

      Outside of the natural sciences and engineering, academia seems to do one of two things: 1) rigorously demonstrate the obvious, as in this case; or, 2) cleverly deny what is obviously true and assert nonsense like Krugman’s.

  2. Not possible…….Michael Moore just said…….we have money…..lots of money….overplayed their hand….

    1. The country as a whole does have a lot of money. We just have to get some of it back from those who pocketed it in the form of a welfare check from the dumbest man ever to be in the Oval Office.

      1. money != value
        income != wealth
        tax cut != subsidy

      2. We just have to get some of it back…

        Yes, you should get all of your taxes back, I should get all my taxes back…finally, we are in agreement.

        1. Tony doesn’t pay taxes.
          He is a professional student.
          I doubt he has ever worked a day in his life.

      3. Peggy Joseph….?

      4. You haven’t lived until you’ve rifled a millionaire’s pockets!

      5. Why do you hate the poor, Tony? And how dare you disparage Obama that way.

      6. So, Tony, how many welfare checks did you pocket?

      7. We just have to get some of it back from those who pocketed it in the form of a welfare check from the dumbest man ever to be in the Oval Office.
        reply to this

        Jeez, Tony, I never thought you would go after unions and President Obama all at once!

    1. Yes!


      The federal government cannot cover such an annual shortfall by raising taxes, as there are not enough untaxed wages and salaries or corporate profits to do so.

  3. That’s what you get for investing in government. Junk silver and antibiotics man, that’s the way to go.

    1. What form are your antibiotics in? (Real question.)

  4. A Treasury bond in the hands of a foreigner is a promise by the government to extort that money from its citizens in the future.

    If you are a citizen and you are holding a bond you are holding a promise by your government to extort that money from you in the future.

  5. That is why savings is for suckers. Suppose you save and sacrifice and come up with a million dollars. Thanks the Ben Bernake and his appalling easy money policy, you will be lucky to earn 3% on that. Now you could invest in the stock or commodities market, but good luck with that. You could make money or just as easily loose most of it. If you want a good super safe income, three or four percent is about all you can expect. That is all of $40,000 a year on a million dollars. And of course we don’t get to keep the entire 40,000. The motherfuckers are going to take at least a quarter of that or maybe more if you have the termity to try to work and live on more than 40,000 a year. So that leaves you with $30,000 a year in exchange for a lifetime of saving and sacrifice.

    And oh by the way that is assuming that some miserable motherfucker like MNG or Tony doesn’t get the government to come and just steal it. And when you get old and get sick medicare is going to take the whole damn thing anyway. And it won’t do you a damn bit of good because they will give the same medical care to you that they give to the homeless drug addict who never worked a day in his life all in the name of fairness.

    So really, you tell me, what the hell is the point of saving anything? It is a wonder Americans save what little they do.

    1. Thanks a pantload, John. I think I’ll just go and shoot myself.

    2. Or maybe a teabagger revolutionary will take your deferred earnings away because you committed the sin of entering public service, and “we are broke” (as he steps out of his giant SUV).

      1. And by ‘deferred earnings’ he means ‘other people’s paychecks’.

      2. Or maybe Hobie Hanson will realize what a retard he is and shoot himself.

        1. But he’s such a retard he would likely miss and hit the neighbor’s cat. I doubt he could successfully fall off a building.

      3. I left him there in his car, bleeding, just like me, except worse. I ran down 4th street towards a gas station, hoping to find somebody who would tell me that I did the right thing.

        I got to the gas station and there was an old black man behind the counter, the tag on his blue gas station vest revealed him to be “Otis”. Otis looked at me, and then my thumb, still bleeding like crazy from the gun.

        “You blasted him, right?” Otis asked me. “He was an antenna.”

      4. Deferred Earnings? How is that denominated? Unicorn dollars.

        I’m not in a public union and the government has made all kinds of promises to me about social security and medicare. Public union members donated their labor, I donated my money. They already cut social security back in the 80s. How about public unions take the next whack before social security gets its second, mkay?

      5. Wow, must have really pissed you off to see Al Gore bitch about our energy consumption as he stepped out of his mega-mansion which uses more energy than dozens of homes of those he pontificates to.

    3. That’s where gold comes in John. People who say that it’s irrational to buy gold don’t understand this one point. The question isn’t whether gold has intrinsic value. The value is the amount of human productive ability that is represented by each incorruptable, uninflatable ounce. If there are still people worth trading with, gold is still valuable. If there was some given amount of paper money that couldn’t be added to or subtracted from yet even when divided into atoms could still be recognized through scientific testing as some given amount of this overall amount of “money”, it would be as good as gold. But since this isn’t the case and all fiat currencies are eventually inflated and devalued by their government, the only way gold would ever lose all its value would be if each individual decided it was better to stop trading altogether and just be self sustaining farmers.

    4. You’re right, if you get 4% (it’s not actually that hard to get a little more, but whatever), you’ll be pulling in $40k if you live off the interest of a million dollars. But why would you live off just the interest, unless you think you’re going to live for a few hundred years?

      You live on the interest, and the principal. If you get 4% and take out $50k a year, you can draw payments for 41 fucking years, which should cover your retirement from 65 until 106 or so. But if you calculate a 20 year pay period, you can draw almost $74k a year. Retiring at 65 and planning to live until 90? Draw 65k at year at 4%. Not too shabby, considering you won’t have kids, education debts, retirement to save for, or hopefully much of a mortgage. That should even buy an old grumpus like you enough heartburn medication.

      My grandmother was one of those “suckers” you describe. She and her husband saved and invested very conservatively for their whole marriage; he passed away and she now has terminal dementia, but of the million they saved, she now has… another hundred thousand on top. One thing that’s lost on people who disdain savers is that if you’re used to saving half of your pretax income, and then you match your pre-tax income with investment income, your apparent income doubles… because you’re not saving half of it anymore.

      1. Is this a 3-4% ROR on top of anticipated inflation? Because it seems that 65k now is going to buy a whole lot more than 65k 30 years from now.

        That said, it’s still not too bad, considering the lack of expenses you note, Tacos. One thing that old people will have much more than the young, though, are catastrophic medical bills, which can vaporize that nest egg in very little time.

  6. Still, it’s not as if our outer space overlords are going to come and repossess all of the Earth’s goods. A lot of paper will simply turn out to be no good, but actual material, land, and our bodies are unaffected.

    1. Robert–Very true, and I find myself making that same argument a lot–did so on the Beck show once. It’s nice for macro world historical optimism. BUT…for all the specific actual individual humans among us, most all WE got are the claims represented by those pieces of paper, so this stuff IS still significant, and I think what John wrote is very apt—tho it would sound more “sympathetic” if the amounts involved were less than that “evil” million…

      1. Re: the “evil” million — The problem is, if you’re heading a middle-class family and looking to retire comfortably (and not very comfortably), $1 million is pretty much the minimum base you’re gonna need (in 2011 dollars).
        I can’t believe so many folks (including many of my peers, who have spent, and continue to spend, foolishly during the past 2-3 decades) believe that a million bucks is still a lot of money to amass.
        Of course, if the government decides to tax my accumulated wealth, guess who has been clunker-driving, vacation-deferring chump?

        1. Of course, if the government decides to tax my accumulated wealth

          It’s only a matter of time.

          1. Everyone knows that the money is in the middle class. You can raise Warren Buffets tax rates all you want but do you think he’s actually going to pay additional taxes? Take the 15% rate tranche to 17% and it’s simple math: what’s 2% of the income in that bucket?

            1. Take all of Buffet’s, Gate’s etc. money, and you get what, a trillion or so? That pays the DEBT for about a year. Or divide it among the masses, who each get a few thousand… sure, nice now, but gone in a few months. But start to cut the spending by $1000 / yr on the 100 million folks or so who take out of the system year after year after year…. and now you start seeing how to fix the problem.

              It’s not that I’m “pro-rich” or “anti-payout”… I just want to make the hard numbers clear!

    2. It’s not about Outer Space Overlords. It’s about our fellow citizens. If our fellow citizens promise some of next years product to someone else (who is then “entitled” to it), then someone will need to produce that product and have it redistributed to those “entitled” to it. If not enough is produced, there is no way to satisfy the entitlements. So, the only real problem in a welfare state is to ensure that enough is actually produced to satisfy all needs – which gets progressively harder to do as producers find that what they produce is confiscated and given to others.

      The point you were making about repossession… you should think through what that means for the Chinese or other foreign holders of our debt. (Hint: all they can really do is cash the bonds, and then use that cash to buy goods and services from Americans – at prices Americans are willing to offer goods and services for at that time – possibly wildly inflated prices.) In other words, they can’t come and “repossess” anything, like your dreaded Outer Space Overlords. At least, not without using force. This is something that those who tremble while watching the “Chinese Professor” TV commercial usually fail to understand.

      1. But the ability to produce product is still there.

  7. My favourite saying: Things are not as good and not as bad as they seem.

    1. No, they are.

    2. Things are not as good and not as bad as they seem.

      Perhaps. But the current candidate for elevation to Iron Law takes a longer view:

      Things can always get worse.

      1. I think Billy Shakes beat you by about 400 years in King Lear.

        And worse I may be yet: the worst is not
        So long as we can say ‘This is the worst.’

      2. Or, “these are the good old days”.

  8. Stop worrying, people!

    Those liabilities will be paid off in cheaper dollars.

  9. Someone should point out to Mr Cowen that that $20,000 in Treasury bills is an investment that is tied up. Only the government could say it had put money into an investment, and then try to spend those same dollars again at the same time as *current* “wealth”. For us real people constrained by actual economics, we can not spend that investment at the same time as we invest it. (Although we may come come up with ambitious plans of how to spend it once the bond is paid back with interest.)

  10. “Everything is worse than we think” — uh, who’s this “we”? Things are only worse than you think if you have forgotten about taxes, or think (foolishly) that the future will be magically tax-free. I’m betting it will be more of the same. Everything is just as has been for some time, and most likely as it will continue to be. Yawn.

  11. By “taxed away” do you mean “confiscated”? Plans to steal IRA and 401k plan assets and replace them with Treasury bonds have already been publicly floated.

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