The Real Danger to Your Social Security is Political, not $

Social Security is NOT broken. It is NOT in danger financially or economically. It is in danger politically from people who claim it’s broken and they want to “fix it”. But the history of changes and opposition to Social Security belies their claims. I’ll deal with why SS is actually in good shape economically and financially in other posts, but here’s an excerpt from Bruce Webb at Angry Bear filling in a little of the actual history of the SS discussions:

The end result of the Greenspan Commission of 1982-83 was a compromise fix of Social Security and this has fed a myth that all parties were pre-committed to a ‘mend it’ and not ‘end it’ position. The accounts of the actual participants show this was not true, the decision to mend came after a bitter deadlock, that was broken only after Reagan concluded he didn’t have the votes to do what he wanted. Even at that it was a close thing, Reagan having committed to the deal having to do some arm twisting on some of the Republican Commissioners and still ending up with three No votes on final.

In the aftermath of what they called among themselves the ‘fiasco’ represented by the 1983 compromise, ideological opponents of Social Security literally regrouped themselves around what would become the Cato Project on Social Security Privatization (now Cato Project on Social Security Choice) and undertook a joint reframing exercise on Social Security that in one incarnation was labeled the ‘Leninist Strategy’. Rather than an open attack on Social Security as being a bad thing in and of itself, a position largely untenable at the time, they simply set out to undermine future support for it, primarily among younger workers, and selling the message that whatever you thought of Social Security in principle, that long term it was guaranteed to fail in practice, and so that while it could be patched, there was no permanent ‘mend it’ solution, meaning that at some point it would need to be addressed by an ‘end it’ or at least ‘transform it’ strategy.

Which is where we are today. The fundamental opposition to Social Security is where it has been since Alf Landon ran against it in the 1936 Presidential election, but the framing built on top of that foundation has been reshaped into one where the problem is not that Social Security is inherently bad, but that it is irretrievably broken. The problem for those opponents is that they can not concede either on ‘irretrievable’ or ‘broken’, that would simply case them to fall back on a ‘socialism’ argument that has been proven unpersuasive to a population that can say with no apparent sense of irony ‘keep government out of my Social Security’….

Go read the whole story (it’s not long) at Angry Bear.

For more details and analyses of Social Security (best site on the web) see Bruce Webb’s Social Security blog.

Trade today is different

From Econospeak (and cross-posted at Angry Bear). When it comes to international trade statistics & analyses, we are flying blind. Our models and theories (the ones that conclude that “free trade” is always best policy) are all based on the idea that private firm A in country B trades with private firm C in country D. But that isn’t the world today. Today it’s private firm A trades with itself between it’s privately owned and controlled facilities (wholly-owned sub-corporations) in countries B, D, and E. This means that maybe “free trade” isn’t the best policy for the residents of country B.

Global Trade Imbalances as a Statistical Artifact

Today, the latest spin that purports to describe the still unfolding global economic crisis is that of ‘global trade imbalance’, with particular attention being focussed on the US and China.

The US, we are told, has a huge trade deficit and China is conveniently blamed for this. “They say China’s currency manipulation hurts the U.S. economy” [1] making China’s goods much too cheap relative to those produced in America.

This tale does not reflect the contemporary reality and it is all the stranger because, on the other hand, it’s never been a secret about the manner in which the large global corporation has evolved its operations over the last 4 decades. These huge networked businesses now have production systems that most often span a large number of countries at the one time. That means, in effect, that world trade is now mostly defined by the nature and extent of the global corporation and its networks. The nation is no longer the core economic entity.

In 2006 Samuel J. Palmisano, Chair of the Board, President, and Chief
Executive Officer of IBM described the evolution that has occurred in the nature and function of the international corporation.[2]Since the early 1970s economic nationalism has abated, Palmisano says. Trade and investment barriers consequently receded. A revolution in information technology also occurred and this development improved the quality and cut the cost of global communications and business operations “by several orders of magnitude”. The large transnational corporation was then much more able to standardise technologies as well as its business operations all over the world. This, in turn, led to the interlinking and facilitation of work both within and among companies.

“New perceptions emerged as to what was possible and permissible…. The focus shifted from products to production.” State borders defined less and less “the boundaries in corporate thinking and practice….”

More ominously, as we now see with the global fad for deregulation, Palmisano eulogises

“the growth of horizontal, intergovernmental networks among the world’s regulators and legislators [that are] built on shared professional standards and relationships among cross-national communities of experts.”

Almost anyone with more than a fleeting interest in economics understands this new reality. The most dominant global enterprises have embedded themselves in one nation after another and most of those businesses are US and European in origin. The economic reasons for these entities doing so appear quite obvious. Labour is cheaper in Asia. Corporations find it much easier to avoid tax and engage in transfer pricing to maximise profits, and so forth.

So, it’s not surprising, and somewhat belated, to find a 2007 paper published by the Asian Shadow Financial Regulatory Committee that finally raises the very serious issue of false accounting in international trade by governments around the globe. Quote:

“MNC affiliate sales within their host countries are not included in trade balances, but are counted in host country GDP. MNC affiliate sales from the host country to other countries are counted as exports of the host country. This accounting practice overstates the current account surplus of a country like China with heavy inward foreign direct investment (FDI). This surplus would be reduced if sales outside China by affiliates of foreign-owned MNCs were excluded from its exports and sales within China by affiliates of foreign-owned MNCs were included in its imports. The trade accounting system overstates the current account deficit of a country like the US, with heavy outward FDI. This deficit would be greatly reduced if sales outside the US of overseas affiliates of US MNCs were included in US exports and sales back to the US of overseas affiliates of US MNCs were excluded from US imports.” [3]

For all the huge trade surplus that China is purportedly ‘enjoying’ it turns out that little benefit is being derived from it. Over 50% of China’s exports are produced by foreign corporations. Walmart, for instance, has 700 factories in China. And ‘China’ (whatever accounting entity this word constitutes) has ‘trade deficits’ with “the rest of Asia”.

“In effect, China aggregates the trade surplus of East Asia with the U.S. and Western Europe, takes the political heat, but captures relatively little of the value that it adds to final products.”

We need to know more than just the fragments of data that government bureaucracies, mainstream professions and the media serve out. A true understanding of the nature of the crises now confronting us is absolutely essential, and yet deliberate obfuscation is occuring as to the cause and nature of our collective dilemma.

“Were it part of our everyday education and comment that the corporation is an instrument for the exercise of power, that it belongs to the process by which we are governed, there would then be debate on how that power is used and how it might be made subordinate to the public will and need. This debate is avoided by propagating the myth that the power does not exist.”

John Kenneth Galbraith, The Age of Uncertainty, 1977

CPI and Velocity of Money data for January indicate deflation worry

From Angry Bear:

Beginning of the year economic blues in the US? I think so. Just looking over Spencer’s CPI post; here is an excerpt (the first paragraph):

The CPI report was encouraging. The total CPI rose 0.2% and the year over year increase is only 2.6%. Although real average hourly earnings fell, real weekly earnings were unchanged.

The core CPI actually fell for the first time since 1982, bring the year over year change in the core CPI to 1.6%. The 6 month SAAR for the core CPI is 0.8%. Despite all the worries about inflation the normal pattern is for the best cyclical reading on the core CPI to occur in the first year or two after a recession. If the economy follows the normal pattern, the core CPI should continue to moderate for another year or two.

My first thought is that I don’t think that this is encouraging at all; and I’m not alone. Core prices fell; these prices are typically very, very sticky. For example, shelter prices are biased upwards in their calculations, but have been declining or unchanged for every month since August 2009. I know that the output gap is not directly observed, except by proxy in the capacity utilization numbers or the unemployment rate; but it must be huge to do this to housing costs.

Look at it differently: the velocity of money improved in October and November of 2009…

… but then took a step back in December of 2009. If this trend continues, non-energy prices are sure to back down much further. There’s just no support for price action at this time – the Fed can’t pull back… it probably should be putting more in.

How much do the wealthiest Americans make, and how much do they pay in taxes?

From ataxingmatter: How much do the wealthiest Americans make, and how much do they pay in taxes?.

How much do the wealthiest Americans make, and how much do they pay in taxes?

Bloomberg.com’s Ryan Donmoyer has a brief story out on recent IRS statistics of income. See Top Earners Averaged $345 million in 2007, IRS says Feb. 17, 2010.Here are the figures cited in Donmoyer’s report based on Tax Analysts’ data analysis presented by David Cay Johnston on Tax.com:

  1. Average income of top 400 US households in 2007: $345 million that’s income per year, folks
  2. Average income of top 400 US households in 2001: $131.1 million that’s about half
  3. Average effective tax rate in 2007 for this same group: 16.6% per Johnston article
  4. Average effective tax rate in 1993 for this same group: 29.4%
  5. Percent of the top 400 earners in items taxed at preferential low tax rates: about 75%

So the richest of the rich managed to do quite well in the artificial boom of the Bush years when most Americans were barely holding even or actually declining in wages. They doubled their annual income from 2001 to 2007 in the years after the Bush ta cuts that disproportionately benefited the wealthy.Johnston adds this comment in his article on Tax.com, noting that the top 400 enjoyed a 27% increase–nine times the increase enjoyed by the bottom 90%:  The figures came at the peak of the last economic cycle and show that widely published reports in major newspapers asserting that the richest Americans are losing relative ground and “becoming poorer” are not supported by the official income data. These statistics evidence “two long-term trends: that income at the very top has exploded and their taxes have been cut dramatically” says Chuck Marr of Center on Budget and Policy Priorities. Donmoyer, op.cit.

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