Simpson-Bowles as a basis for a "grand bargain"

[Woolleybugger]

it can be done if you believe in the concept of funding each major program uniquely and independently just as a corporation does with any cost center. For instance, say excess reserves in the SS fund were prohibited from being loaned to the federal or state government. That would force them to have bond holders that actually paid interest to the fund outside of the general fund making them the same as any other bond sold by any corporation. What my idea is trying to do is force accountability for funding to each program and taking the power to do what you just said out of the hands of the government. Financial sleight of hands have created this interdependency which then makes any meaningful discussion of the budget and the incomes impossible. In many ways, our general fund is like the securitization of debt that caused the collapse. Imagine if you were sold a war bond instead of a t-bill to fund the defense department. What if you bought SS bonds or Medicare bonds...it could work.

 

[degsme]

it can be done if you believe in the concept of funding each major program uniquely and independently just as a corporation does with any cost center.

10 years ago, Microsoft had a department wide (ie cost center) re-org every 8.5 hours. You cannot do that sort of gamesmanship with government policy. it just does not work

 

[degsme]

HEre's Why Simpson-Bowles is the WRONG approach to "entitlements"

As I discussed a bit in the sub-thread IRP and I had on this, I believe Simpson-Bowles is the wrong approach precisely because it ASSUMES AS A GIVEN that "entitlements" are a problem that is somehow related to the general budgeting problem.

Here is why this is wrong http://www.fas.org/sgp/crs/misc/RS20946.pdf Medicare has been predicted as being within X years of being insolvent for coming onto 43 years now. And _X_ has ranged from a low of 2 years to a high of 28 years. And that prediction has never been close to accurate



So by buying into Simpson-Bowles, we inherently validate the GOP notion that Medicare and Social Security are massive problems rather than just iterative governance and management challenges - indistinguishable from what a corporate COO faces in predicting sales, expenses and net profit.

And that really just buys into the political ideology that "Entitlements are Unsustainble Socialism" when there is absolutely ZERO evidence for this claim.

 

[fairsheet]

The American people already have access to some pretty remarkable detail as to inflows and outflows. Admittedly, some of it's a little murky - especially as it relates to intelligence and defense. But, even in those cases we have a pretty good idea as to total spending.

The idea that we should expand upon that by providing everyone with a "receipt", is just a little naive. First of all..as I babble above, we already HAVE access to that information, should we choose to avail ourselves of it. Yet, most of us are either too lazy, too disinterested, or so invested in our own "feelings" about the subject that we'd really rather not confront the actual reality. And second....even if it were possible to generate such a "receipt" entirely outside of the political realm, it would be impossible to convince very many that it wasn't a political document.

 

[imreallyperplexed]

Just to be clear, I am being a bit of a devil's advocate. I do think that gross income inequalities (and I think that that is the direction in which folks like Romney were headed) are "unjust" and spur great social unrest. At the same time, I am not sure that absolute income equality is a great idea either. I am not sure that you or Spamature are suggesting absolute "income equality." But taken to a "logical" conclusion, it is not entirely clear to me how a society/economy can guarantee unlimited entitlements and whether folks would work to earn them. Is there a point where there are too many entitlements? As a lefty, it is relatively easy for me to concieve on limits on my discretionary/conspicuous consumption. But it seems to me that there might be limits to entitlements as well. (And, if I can raise these questions, I know that people to the right of me are going to be infinitely more adament.)

(There are no easy answers to these questions. As degsme noted, these are wicked problems.)

This type of behavior is ancient. Human history has dealt with this before and it always ends in a revolution or a bloodbath. Capitalism is a new concept and in some places like Venezuela, extreme income disparity led to a peasant revolt. Why people worship at the altar of uncontrolled wealth accumulation is something that I cannot fathom. No one truly needs more than 100 million to secure for themselves and their heirs continuous prosperity for as far as they can imagine. Let us be generous and say a person could keep up to 1 billion before massive tax penalties apply. If this happened by a tax on wealth, income disparities created by the market or just plain luck would be limited to a figure that still insures an incredible standard of living for the rich while keeping the money earned beyond that amount available for the people themselves. The people create the money, they form the basis for confidence in an economy that protects the value of the money through their efforts, their support of the law, of private property, of government itself. I see nothing wrong with a wealth tax forcing liquidation of assets beyond 1 billion. If anyone tries to make a claim that the incentive for Bill Gates or the Waltons is diminished because they can only amass 1 billion then what they are really saying is that greed is a greater value or moral guide than any other value we cherish. I for one would be very pleased to have 1 billion dollars. Would 2 billion make my life any better? I doubt it very much and even if it did make my individual life better, why should the entire society be organized around my greedy impulses?

 

[imreallyperplexed]

Absolutely. That is one reason, I like setting up multiple scenarios built on different assumptions.

Of course, this strategy is not perfect either as this strip from Dilbert highlights:

http://dilbert.com/strips/comic/1999-04-27/

Well for example if the Social Security and Medicare "numbers" are predicated on it never being acceptable to fund them temporarily out of General Revenues - then you have already cooked certain assumptions into the mix.

 

[Woolleybugger]

The shell game has to stop if you want honest numbers and budgets. The problem is that our legislators hide behind gimmicks, the people get told lies and no one has any clue how to run a balanced budget in good times. Until we get back to fiscal sanity in good times, we cannot keep saying massive deficits are required all the time because we are in a mess. I like accountability myself.

 

[Woolleybugger]

We are so far removed from a society where no one works that it is laughable to even think that is on the table. We are the richest nation on earth and also one of the most unequal. There are plenty of other national examples of how to divvy up wealth to look at. I do not know one single person that would not invent something because the day they got their first prototype going in the garage Obama said taxes would be 100% over 1 billion. This gets to be quite silly after a while given my 30 years in start ups and working with founders and CTOs that never did it to get rich, they did it because it was fun and what they wanted to do. If your only goal is to get rich, then you are in the minority of start up founders. In fact, if that is really your goal, your odds at getting rich are very limited.

 

[imreallyperplexed]

Oh, I understand the desire to start businesses. But to be honest, I do think that Bill Gates, Steve Jobs, and Larry Ellison did enjoy the monetary rewards to some extent. That said, I do think that there are lots of rewards to building a business besides vast disposable wealth. However, outside of high-tech, I am not so sure. And I certainly don't know what drives the bankers and the masters of Wall Street.

In any case, there was an economist that I saw on TV the other day who explained that the whole issue really involves differing views of "labor elasticity." Republicans tend to think that lower taxes (and increased income) are big drivers (high elasticity) of entrepreneurial effort. Democrats tend to think that taxes don't have much influence (low elasticity) on entrepreneurial effort. The economist pointed out that this is difficult to measure. And I am pretty agnostic (though I am a supply-side skeptic.)

We are so far removed from a society where no one works that it is laughable to even think that is on the table. We are the richest nation on earth and also one of the most unequal. There are plenty of other national examples of how to divvy up wealth to look at. I do not know one single person that would not invent something because the day they got their first prototype going in the garage Obama said taxes would be 100% over 1 billion. This gets to be quite silly after a while given my 30 years in start ups and working with founders and CTOs that never did it to get rich, they did it because it was fun and what they wanted to do. If your only goal is to get rich, then you are in the minority of start up founders. In fact, if that is really your goal, your odds at getting rich are very limited.

 

[fairsheet]

it can be done if you believe in the concept of funding each major program uniquely and independently just as a corporation does with any cost center. For instance, say excess reserves in the SS fund were prohibited from being loaned to the federal or state government. That would force them to have bond holders that actually paid interest to the fund outside of the general fund making them the same as any other bond sold by any corporation. What my idea is trying to do is force accountability for funding to each program and taking the power to do what you just said out of the hands of the government. Financial sleight of hands have created this interdependency which then makes any meaningful discussion of the budget and the incomes impossible. In many ways, our general fund is like the securitization of debt that caused the collapse. Imagine if you were sold a war bond instead of a t-bill to fund the defense department. What if you bought SS bonds or Medicare bonds...it could work.

Maybe I'm mixed up, but per its charter, Social Security uses its surplus to buy U.S Treasury bonds and those bonds are repaid with interest. Yet you're suggesting something in reverse? What am I missing? If I bought a "Social Security" bond, wouldn't that suggest that Social Security would have to repay ME...with interest?

 

[Woolleybugger]

I am pretty sure the SS Bonds are bought by the government and are not sold on the market. If the government buys the bonds, then you get into the situation we are in today which is that the government (the gop) does not want to pay it back...

 

[degsme]

The American people already have access to some pretty remarkable detail as to inflows and outflows. Admittedly, some of it's a little murky - especially as it relates to intelligence and defense. But, even in those cases we have a pretty good idea as to total spending.

The idea that we should expand upon that by providing everyone with a "receipt", is just a little naive. First of all..as I babble above, we already HAVE access to that information, should we choose to avail ourselves of it. Yet, most of us are either too lazy, too disinterested, or so invested in our own "feelings" about the subject that we'd really rather not confront the actual reality.

But this is the classic case of getting something clearly in your face that you don't have to do any sort of proportional calculations on (and most Americans frankly are incapable of accurately doing proportional arithmetic)

 

[degsme]

The shell game has to stop if you want honest numbers and budgets. The problem is that our legislators hide behind gimmicks, the people get told lies and no one has any clue how to run a balanced budget in good times. Until we get back to fiscal sanity in good times, we cannot keep saying massive deficits are required all the time because we are in a mess. I like accountability myself.

Well yes and no. Our federal budget is a complex thing. At least as complex as any of the corporations that sit within its purview. And given that the average INFORMED INVESTOR is unable to fully untangle a Corporate budget, I see no reason to believe that the average UNINFORMED Resident (who has difficulty with adding fractions much less calculating opportunity cost and compound interest) is capable of understanding something way more complex.

 

[fairsheet]

I am pretty sure the SS Bonds are bought by the government and are not sold on the market. If the government buys the bonds, then you get into the situation we are in today which is that the government (the gop) does not want to pay it back...

As I understand it, it's the other way around. SS doesn't sell the bonds. SS buys the bonds. Per its charter, SS is required to buy US Treasuries with its surplus and the US is required to sell those treasuries to SS.

It may be an imperfect system but, it's way better than any of the alternatives. IF SS were to invest elswhere, we'd have two problems. One would be that a system whereby SS was investing its surplus somewhere other than the "guvmint", it would be akin to fascism in that SS would be picking winners and losers in the private half of our economy. And the second is....that no matter how much the GOP and SS weenie-whiners in general may wish to shout otherwise, there's still no more reliable investment than a US Treasury bond. The "idea" that there's ANY scenario under which the U.S. Government would renege on IT'S obligations, while private securities remained viable, is......naive.

 

[Woolleybugger]

I realized I got it switched last night...you are right. thanks.

 

[degsme]

Oh, I understand the desire to start businesses. But to be honest, I do think that Bill Gates, Steve Jobs, and Larry Ellison did enjoy the monetary rewards to some extent. That said, I do think that there are lots of rewards to building a business besides vast disposable wealth. However, outside of high-tech, I am not so sure. And I certainly don't know what drives the bankers and the masters of Wall Street.

In any case, there was an economist that I saw on TV the other day who explained that the whole issue really involves differing views of "labor elasticity." Republicans tend to think that lower taxes (and increased income) are big drivers (high elasticity) of entrepreneurial effort. Democrats tend to think that taxes don't have much influence (low elasticity) on entrepreneurial effort. The economist pointed out that this is difficult to measure. And I am pretty agnostic (though I am a supply-side skeptic.)

Actually its fairly easy to measure. We have pretty good data on this across the USA, Canada and the EU.

Basically what drives entrepreneurial effort is two things:

1. Access to capital (in the USA historically this was your home equity but also VCs)
2. regulatory barriers to entry for Small (50 employees or less) businesses

For eample France does poorly on #2 and #1 (most mortgages are 15 year and less than 50% of the property value) and has low entrepreneurial effort.
Germany does much better on both and has high entrepreneurial effort.
Greece does terribly on #1 but ok on #2 (that's part of the tax compliance problem) and has a fairly high rate of small entrpreneurial business, but their size is limited by access to capital
Silly valley does well on both, the Midwest does poorly on #1 (lower home values, and no VCs)...

Money Magazine just had an article on this http://money.cnn.com/gallery/smallbusiness/2012/11/27/best-global-startup-cities.fortune