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Thu Feb 14, 2013, 07:56 PM

The nonoption

In todays debate about entitelments the option presented is a reduction in benefits or nothing.

To freely quote the popular 80-s UK tv series yes primeminister "you give the minister two options, one is the civil service suggestion the other is the ministers, the ministers suggestion you explain will lead to WW III leaving the civil service option as the only one"

This is the reality of entitlements today, either cut or in the future WW III will break out. To some extent this is true as if given the choice between doing nothing and save will give the result that the system go down or benefits drastically will be reduced.

Unfortunately the present debate is framed around this meaning that more and more of the goverment recources are directed to entitlement spending and less and less is left for discretionary speninding. Simplified it can be said that discretionary spending is investing in the future and mandatory spending in entitlements is paying for the past. As discretionary spending is reduced to pay for mandatory spending so is longterm the ability to pay for promised past, discretionary spending includes such evidently needed things as education, infrastructure to the more abstract items as preservation of culture. To make things worse a reduction in educational spending wont be noticed for decades while a cut in entitlements will be noticed the same day making politicians from all sides prefer to insult not born voters to actual voting ones.

The problem is less complex than most would think though. If to the equation one would put revenue increses on top of cuttbacks or doing nothing the playing field levels out. Because to the options presented there is the ambition option, if the US wish to let anyone that is 65 retire with todays benefits and wish to provide first class infrastructure and first class education longterm there is only one way to do this. The nation can as one of the worlds richest do this, but without putting money behind such an ambition both will eventually inevitable fail. Without a well educated workforce and an infrastructure there will be less and less to pay for more and more, whitout solvent entitlments the credability of those will only fall.

There is nothing that fundamentally contradicts investing for the future and at the same time promise for the past but ourself. If we have this ambition as in all other things in life it will carry a cost, in private life putting career first will perhaps cost family, putting family first will perhaps cost career. If we want to be able to pay for entitlements and invest in our future there is a cost, more public take of our earnings. If this is not acceptable the cost will perhaps not come today but will in the end as a bridge without maintenance fall. Which means building a new bridge at a much higher cost or to go back in time and take a ferry. There are no free lunches, only diffrent costs.

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Arrow 9 replies Author Time Post
Reply The nonoption (Original post)
Mattias Feb 2013 OP
Warpy Feb 2013 #1
Mattias Feb 2013 #2
Warpy Feb 2013 #4
Mattias Feb 2013 #8
Mattias Feb 2013 #9
RobertEarl Feb 2013 #3
Warpy Feb 2013 #5
RobertEarl Feb 2013 #6
Mattias Feb 2013 #7

Response to Mattias (Original post)

Thu Feb 14, 2013, 08:14 PM

1. Rubbish!

What this describes as "entitlements" was designed as a pay as you go insurance plan. You paid your premiums during your working life on the theory that you'd get enough when you became too old to work to eke out survival.

It still works like that and what this post insists on calling "entitlements" like it's some kind of welfare scheme giving money to idlers has always responded to inflation by increasing the amount of income one pays premiums on.

All they need to do is stop lying about inflation and raise that cap to keep the system solvent.

Starving old people is not going to work. It will only result in having both your mother and your mother in law living with you at the same time. Tell me even Republicans are crazy enough to want that. I can use a laugh.

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Response to Warpy (Reply #1)

Thu Feb 14, 2013, 08:33 PM

2. I dont disagree

But the insurance plan has faltered. The premiums are based on 15 year shorter average life span than the actual meaning the same premium 40 years ago is suppose to provide the same living standard 15 years longer than assumed. Eg. if a fire insurance policy premium is based on the assumption of 1 fire in every 1 000 homes and value of a home is 100 000, the premium would be 100 per policy taker. Should the number change to 1 fire per 500 homes either the insurance company change premiums to 200 or take a loss until money runs out. Easy as.

And I am long from saying that entitlements should be reduced, I think its important that they stay as they are. But to keep this promise we have to adapt to reality, more revenues are needed. To shy from that fact is to shy from reality, the ruling party of denying reality is the GOP and I dont think that strategy have served them well or will serve them well.

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Response to Mattias (Reply #2)

Thu Feb 14, 2013, 08:43 PM

4. That 15 year longer lifespan doesn't apply to everyone

People who do physical labor, from ditch diggers to surgeons, find their bodies breaking down sooner and will have those shorter lifespans.

Most of what increased the human lifespan are immunizations and antibiotics, both of which decreased infant and childhood mortality and brought the average age up. We're not living that much longer, we're just living long enough to work and pay our premiums.

In addition, a recent article cited Boomers as having much worse health than their parents did, a result of the mess our health care system has become. Projections of disaster in the system are based on "nobody is ever going to die." Yes, we will, and sooner than our parents did and nobody complained about their social security checks.

I debated whether or not to alert your post, but right wing boilerplate about Social Security is so pervasive that it had to be answered--again.

Wikipedia has some good articles about Social Security, how it was designed and which presidents have sought to destroy it. I think you'll find them eye openers. At least I hope you will.

http://www.bloomberg.com/news/2013-02-04/baby-boomers-sicker-than-parents-generation-study-finds.html

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Response to Warpy (Reply #4)

Thu Feb 14, 2013, 09:27 PM

8. To point out

The obvious should not make me GOP...technically it should make me the oppsoite seeing there flight into fantasy world.

That is not to say that obvious even if unconfortoble views, are unwelcome I would even stay. Retirement age is in ways optional for any nation as long as the nation is willing to pay. So is anything else.

US can go minimal Ayn Rand state and see how many of the creators that would eventually stay with no infrastructure, no law, no educated workforce, no basic sevice. My bet is very few "creators" would create any of the basic services and even less would create the more complex ones. Likely the US as most nations that have been close to try this road would see there creators living in prospering high tax nations leaving the not so fortunate to live in this "heaven of freedom"

Again I state that my belief is that its possible to give our children a first class start and our elders a first class end. But and this is the caveat, this cant be done by GOP taxation. We simply have to rise to the ambition by beeing willing to pay for the ambition. If that is in someway wrong and taking a wrong stand, I guess I dont belong here.

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Response to Warpy (Reply #4)

Thu Feb 14, 2013, 09:43 PM

9. And to point out

Whatever article, whatever pointed out, whatever said.

I am an economist, the demographic count done when introducing entitlements might have been right at the time. But now its not adecuate now, dosnt matter how many say diffrent. Either cut entitlements, cut discretionary spending or increase revenue. We dont pay our premiums now if we did there would not be net payouts from the system, it would be stable and its not.

1,4 % increase in premiums would make it stable and keep retirement at 65, if we wish this we should pay this. We should not pretend its possible changing nothing. I am more than willing to give up earnings that I will never use, beeing taxed more to make children I will never see get a better education.

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Response to Warpy (Reply #1)

Thu Feb 14, 2013, 08:34 PM

3. Problem the accountants have...

All that money that we paid in for retirement is not in the bank. It has been spent. So now the government has to find new money.

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Response to RobertEarl (Reply #3)

Thu Feb 14, 2013, 08:44 PM

5. We all know where to find it

but the thought makes politicians quake in their Guccis.

They'd rather starve old people. They don't expect old people to fight back.

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Response to Warpy (Reply #5)

Thu Feb 14, 2013, 08:51 PM

6. So the future is..

SS and all that will have to become general fund expenditures and revenue.

I'm good with that. Start off with a clean slate. Taxes on things that the richest most use, like stocks and banks and yachts and jets and all that, will even the field and balance out payments.

Too, what i see is everybody gets the same amount of retirement funds, no matter what you made in your working years. Cool, huh?

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Response to Warpy (Reply #5)

Thu Feb 14, 2013, 09:12 PM

7. Again

I agree. US should have the ambition to educate the most competent workforce in the world aswell as taking the best care of its elder. Unfortunately that ambition is and have been some time a lip only one.

Since Reagan the spending on discretionary items have been consistantly declining as share of GDP, to date entitlement spending has been upheld. In 2016 continuing the current pattern in discretionary spending it will be so low that roads, for the first time in history will have to be closed from danger and not uselesness. In 2020 the federal goverment will have to net contribute to entitlements eroding discretionary spending even more.

A private firm that wants to stay on top have to invest in new machinery and R&D even if it rather would have payed higher dividents, equally it have to fulfill current obligations even if it wish it hadent. Same rules go for a nation, to stay on top infrastructure and education need to be on top aswell as keeping contract obligations. Failing this a firm and a state go bust in the end. A private enterprise who expect to spend nothing for something will get nothing for nothing, so will a nation.

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