American Jobs Act; Social Security View 20110909

View 691 Friday, September 09, 2011

I watched the President’s address to a Joint Session of Congress yesterday. It was a great speech complete with urgent appeals to the Congress to pass the American Jobs Act immediately. They can’t act too fast. The crisis is real. But when I went to examine the American Jobs Act of 2011, I couldn’t find it. I called a friend in Congress. He’s more into defense and space than economic wonkery, but he hasn’t seen it and doesn’t believe the Speaker has either. A Google search directs me to the Daily KOS, which seems quite enthusiastic about the Act, but doesn’t have the text, and refers me to the White House. At the White House I get to see the President’s speech repeated, but I don’t see the text of the Act.

In economic wonkery the devil is always in the details. The American Jobs Act is long on promises of spending cuts to take place Real Soon Now, but short on specifics of what will be cut. The White House Summary is enthusiastic about the effects this will have on the economy, but it does not indicate what is in the Act that could not have been proposed months or even years ago.

It’s pretty hard to analyze a Bill before it has been written, but perhaps that is the intention. More when we know more. The President has promised us that this Bill, which will be paid for eventually but will require borrowing more money now, will be our salvation and will get this country moving again. This is the Bill we have been waiting for. He did not explain why we had to wait this long to hear about it, or how long we will have to wait until we know what is in the Bill.

Washington (CNN) — Facing low approval ratings and constant Republican criticism as his re-election campaign starts up, President Barack Obama challenged Congress on Thursday night to put the good of the nation over political benefit and pass a huge jobs plan he proposed.

In a speech to a joint session of Congress, Obama told the legislators to "stop the political circus and actually do something to help the economy" by quickly approving the $447 billion package of measures so he can sign it into law.

"The people of this country work hard to meet their responsibilities. The question tonight is whether we’ll meet ours," Obama said to applause. "The question is whether, in the face of an ongoing national crisis, we can stop the political circus and actually do something to help the economy. The question is whether we can restore some of the fairness and security that has defined this nation since our beginning."

Obama also told legislators that they should quickly pass his plan, called the American Jobs Act.

http://www.cnn.com/2011/POLITICS/09/08/obama.jobs.plan/index.html

Other analysts have not been so enthusiastic. No one seems to have found anything new in the proposals, although without the specifics of the Act that is hard to discern. Some have said it’s just a new version of the stimulus, complete with paying people to remain unemployed, but again, it is difficult to know since we don’t have the details of the legislation.

The original American Recovery and Reinvestment Act of 2009 included approximately $82Bn worth of spending on social welfare programs. This was targeted to favor the recently unemployed. The new American Jobs Act extends the welfare expansion for yet another year. The motives here are decent and noble, but these continued extensions have turned the necessary societal safety net into a hammock for the ne’er-do-wells. The the real-world results are a disincentive for low-skilled individuals to seek gainful employment. Decent intentions do not insure a successful policy outcome and this also will fail.

The 2009 American Recovery and Reinvestment Act attempted to put spending money in the pockets of consumers by reducing the rate of payroll tax collections. It also included targeted tax breaks for education, home purchases and some remodeling and incentives to buy new cars. This was supposed to goose aggregate demand and convince people drowning in personal debt to buy more big-ticket items on credit. The American Jobs Act will extend these tax breaks.

Thus, the American Jobs Act is remarkably similar to the failed 2009 American Reinvestment and Recovery Act. All our President seems to have in his toolkit is a hammer. He will use it to pound away at the current Phillips’ Head Screw and wonder why he can’t drive it through the board with significant success. It’s the sequel to a Hollywood Movie that bombed in its original run. We could call it Stimulus – Smaller, Shorter and Regrettably Un-Cut!

http://www.redstate.com/repair_man_jack/2011/09/09/the-american-jobs-act-of-2011-lather-rinse-repeat-and-fail/

President Obama is telling us of the wonders of the Act. Congress members are asking how it will be paid for. The President has replied that next week he will make a speech that will tell us how to reduce the deficit. We’ll have to wait to find out how that will be done.

Given past proposals from President Obama, we can expect that one key to his vision of recovery will be the expansion of green jobs.

The F.B.I. on Thursday raided the office of a California solar company that borrowed $528 million from the federal government before filing for bankruptcy, as House Republicans announced that they would call two top Obama administration officials to testify about the case next week.

The federal agents, acting in a joint investigation with the inspector general of the Department of Energy, served search warrants on Solyndra, which announced last week that it was filing for bankruptcy protection. The search was part of an investigation into the loans Solyndra received from the Treasury Department that were guaranteed by the Department of Energy under a highly promoted federal stimulus program. http://www.nytimes.com/2011/09/09/business/solar-company-is-searched-by-fbi.html?_r=1

Michael Stern Hart, RIP

Michael Stern Hart, a burly rebel whose vision of a literate society led him to pioneer the electronic book decades before the spread of the Internet, has died. He was 64.
The founder of the online library Project Gutenberg, Hart had been in poor health and was found Tuesday at his Urbana, Ill., home, said Project Gutenberg Chief Executive Gregory B. Newby. An autopsy is underway to determine the cause of death. http://www.latimes.com/news/obituaries/la-me-michael-hart-20110909,0,7536729.story

Management Question for Your Amusement

The UK Government is getting on the case of UK universities about inefficiency. http://www.bbc.co.uk/news/education-14836196 They may have a point…

Student fees in the UK: £8500/year ($13600/year)

Student fees at Cal: £9000/year ($15000/year)

Number of teaching weeks in the UK: 24/year

Number of teaching weeks at Cal: 30/year

Formal staff contact hours in the UK: about 10/week (excluding labs and discussion sections)

Formal staff contact hours at Cal: about 15/week (excluding labs and discussion sections)

Contact hours/year in the UK: about 240

Contact hours/year at Cal: about 450

Contact hours for a degree in the UK: about 720 (costing the students £25500)

Contact hours for a degree at Cal: about 1800 (costing the students £36000)

Additional hours during the second year of A-levels that might be added to the contact hours for a degree in the UK: 300 hours. The corresponding hours for AP classes in high school should then be credited to the degree at Cal.

As far as we can tell, the difference is that the UK uses academics (at $64000/year) for such things as grading assignments, leading discussion and lab sessions, and a couple of days of administrative work per week. Also we have fewer adjuncts, and the average lecture section is 24 students.

How do US colleges and universities manage to keep body and soul together and still deliver twice the hours?

—

"We do not understand how a country,… can produce people who seem to be acting without thinking, let alone making serious efforts to investigate the consequences of their actions." (Mary Evans in the Times Higher Education)

Harry Erwin

I fear I have no answer to that question.

I have been asked where I am getting numbers for the exhaustion of Social Security without some kind of restructuring. I confess I have not spent much time looking into the details, taking as fairly well given the general conclusions that float about the analysis world; but here is the formal report from the Trustees of the SSA.

Social Security

Social Security expenditures exceeded the program’s non-interest income in 2010 for the first time since 1983. The $49 billion deficit last year (excluding interest income) and $46 billion projected deficit in 2011 are in large part due to the weakened economy and to downward income adjustments that correct for excess payroll tax revenue credited to the trust funds in earlier years. This deficit is expected to shrink to about $20 billion for years 2012-2014 as the economy strengthens. After 2014, cash deficits are expected to grow rapidly as the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers. Through 2022, the annual cash deficits will be made up by redeeming trust fund assets from the General Fund of the Treasury. Because these redemptions will be less than interest earnings, trust fund balances will continue to grow. After 2022, trust fund assets will be redeemed in amounts that exceed interest earnings until trust fund reserves are exhausted in 2036, one year earlier than was projected last year. Thereafter, tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2085.

Under current projections, the annual cost of Social Security benefits expressed as a share of workers’ taxable wages will grow rapidly from 11-1/2 percent in 2007, the last pre-recession year, to roughly 17 percent in 2035, and will then dip slightly before commencing a slow upward march after 2050. Costs display a slightly different pattern when expressed as a share of GDP. Program costs equaled roughly 4.2 percent of GDP in 2007, and are projected to increase gradually to 6.2 percent of GDP in 2035 and then decline to about 6.0 percent of GDP by 2050 and remain at about that level.

The projected 75-year actuarial deficit for the combined Old-Age and Survivors Insurance and Disability Insurance (OASDI) Trust Funds is 2.22 percent of taxable payroll, up from 1.92 percent projected in last year’s report. This deficit amounts to 17 percent of tax receipts, and 14 percent of program outlays.

The 0.30 percentage point increase in the OASDI actuarial deficit and the one-year advance in the exhaustion date for the combined trust funds primarily reflects lower estimates for death rates at advanced ages, a slower economic recovery than was assumed last year, and the one-year advance of the valuation period from 2010-2084 to 2011-2085.

While the combined OASDI program continues to fail the long-range test of close actuarial balance, it does satisfy the conditions for short-range financial adequacy. Combined trust fund assets are projected to exceed one year’s projected benefit payments for more than ten years, through to 2035. However, the Disability Insurance (DI) program satisfies neither the long-range nor short-range tests for financial adequacy. DI costs have exceeded non-interest income since 2005 and trust fund exhaustion is projected for 2018; thus changes to improve the financial status of the DI program are needed soon. http://www.ssa.gov/oact/trsum/index.html

Couple this with the growing deficit in the US budget, and I think it fair to conclude, as I did, that those now receiving Social Security may be fairly confident that they will continue to get their benefits for life. There may be some question about the Disability Insurance program recipients, particularly those who never paid into the fund and began receiving payments at a relatively young age. Those just entering the work force can reasonably doubt that the system will be funded by the time they should expect to receive benefits.

The system can be adjusted. Ages of eligibility can gradually be raised. Eligibility for Disability can be restricted to those who actually have worked and paid into the system (i.e. making it a little more like real insurance rather than an out and out welfare entitlement). Social Security can be salvaged, but at the moment it remains a Ponzi Scheme; but unlike the usual Ponzi Scheme, this one has some ties to the US government and means of using the tax payers to bail it out when it runs out of money.

Note that I have not endorsed any particular scheme for changing or bailing out the SSA, and since I have no idea of what Governor Perry intends to do about Social Security I can’t comment on his plans; what I have said is that he should not be dismissed out of hand as a fool for saying that Social Security is and always was a Ponzi scheme rather than a genuine compulsory savings and investment program. It might have become a savings and investment program, but the SSA income was never invested: it was simply spent for current expenses. The “Trust Fund” was supposedly invested in US Treasury Bonds, but I note tht during the budget deficit controversies the President of the United States said that the Treasury would not have the funds to pay out its Social Security obligations unless the US Debt Limit was raised; this implies to me that the SSA Trust Fund isn’t like any other Trust Fund I know of, since it ought to have more than enough money to pay its obligations for some years to come. Ponzi schemes, of course, never have enough money to pay their obligations.

I will cheerfully admit that I have not done enough analysis to tell when Social Security will run out of money, but it seems clear to me that absent a good bit of fixing it most certainly will before those just joining the work force will be eligible for benefits.