March 19, 2010

Social Security Almost Breaks Even!

I’ve walked and I’ve crawled on six crooked highways
I’ve stepped in the middle of seven sad forests
I’ve been out in front of a dozen dead oceans
I’ve been ten thousand miles in the mouth of a graveyard
And it’s a hard, and it’s a hard, it’s a hard, and it’s a hard
And it’s a hard rain’s a-gonna fall.

Bob Dylan, "A Hard Rain's A-Gonna Fall."
Social Security, which as recently as a year ago had projected its reckoning day - the point at which annual outgo exceeds withholding tax revenues and interest income - would not approach until at least 2017. No worries, right mate?

Then SSA revised its forecast, advancing the crossover date (in the absence of any program changes) to 2016, a year earlier, but still a long time away in Washington, D.C. years where time virtually crawls. SSA also earlier in the fiscal year estimated its FY 2010 and FY 2011 shortfalls would be about $10 billion. Now the 2010 deficit alone may triple to nearly $30 billion.

Now the
Associated Press has "discovered" the day of reckoning already has come and gone, six years early, in a folksy, oh-don't-worry-about-any-of-this piece which seems to find it more interesting that actual, printed, intra-governmental bonds, $2.5 trillion of IOUs, are kept in three-ring binders in the bottom drawer of a locked filing cabinet in West Virginia of all places than the disturbing reality of an insolvent pay-as-we-went retirement entitlement program. Keith Hazelton, Anecdotal Economics

That's what I thought had happened, but you know how it is. How could I possibly be right if the official forecast claimed that Social Security inflows would exceed outgoes until the year 2017? It's not as if the government, which does these things for a living, could ever get its stats that far off, right? Seven years? Yet it develops that the Social Security Administration did indeed miss this thing by a mile. Which implies that my reading of the Treasury's monthly statements was more or less accurate.

There's a simple solution, of course: stop reading the monthly statements. What good can come of such a morbid preoccupation? Still, it does appear the problem is already here with us, and it's difficult to imagine that a confluence of negatives could possibly be worse for this FDR-era King of the Entitlements. The leading edge of the Baby Boomers trying to quit, a demoralized (and massively unemployed) younger labor force (on whom the leisure-loving Boomers depend for their monthly stipend), and with roughly half of the Boomers with no other means of funding their Golden Years. It's surprising, under these circumstances that the issue doesn't command more attention.

Of course, to beat a dead horse (poor old Trigger): the government, and the "Progressives" trying to protect Social Security from Right Wing assault, cover their eyes and talk about the $2.5 trillion trust fund which should be good "until 2037." Why oh why do grown people talk this way? The Trust Fund should be marked with an exhibit tag and cordoned off with yellow tape as a crime scene, but it has no financial significance whatsoever. The trust fund has about the same commercial marketability as a ransom note.

Yet I would venture to say that almost no regular financial writers in the major newspapers ever quite figure this out. One must recall that a majority of the American people believed, in March, 2003, that Saddam Hussein was behind the attacks of September 11 for a full appreciation of how easily the folks here at home, including the punditocracy, can be traduced into believing utter nonsense. So that if we simply keep repeating that the S.S. system is solvent "until 2037" we can stop thinking about it. It isn't solvent now.

So, in the absence of Official Explanation, I would surmise that the book-cooking at the Treasury proceeds in this fashion: In February, for example, the Treasury received about $49 billion in FICA taxes. The outgoes were about $62 billion. The difference of about $13 billion is covered by an "On Budget" credit entry on the income side. What is this money? My somewhat educated guess is that this $13 billion represents a subtraction from the "accrued" "principal" and "interest" from the $2.55 Social Security "Trust Fund." Leaving one question: since there is no actual money in the Trust Fund, is the shortfall funded from Treasury sales, adding to the national debt, or is the Treas/Fed simply monetizing this amount (that is, willing it into existence by fiat)? I've never seen an explanation of that lacuna. And, understandably, no member of Congress likes talking about it, since it's the essence of the corpus delicti.

There you have the basic delta between the treadmilling younger workers, struggling to make ends meet, struggling to find employment at all, many no doubt trying to stave off foreclosure and destitution, yet nevertheless required to keep paying, off the top, this onerously regressive FICA tax; and the eternally grateful seniors and the somewhat nervous Boomtown Rats insinuating their way into early retirement, and trying to discern among the sullen masses of younger workers the two or three who will finance their social security payments.

I ask you, as a fair-minded person: does this sort of dynamic tension sound like something that's going to last? Do the Boomers actually think that the younger generation, as they increasingly come into power, are going to sit still for a system which they can predict, to an absolute moral, actuarial certainty, has no chance of ever supporting them? I sense you probably agree with me then.

Wait till this one becomes fully realized in the national consciousness. If, as a matter of reality, the Social Security payments disbursed now are only about 79% funded (49/62), would not that support the immediate reduction of benefits paid by 21%, as opposed to the fantasy of any COLA increase? That's where we really are. Get out your steel-reinforced umbrella: A hard rain's a-gonna fall.

My soft spot for Israel

How can a liberal be for Israel? one might ask. Israel has better weapons, their country was created by imperialist oppressors, their opponents, in general, have darker skin. It's the perfect set-up for a knee-jerk support of all things Palestinian. And, in general, America's "Left" lines up, always the uneasy (and pampered) supporters of the "little guy."

But in truth, I've never followed the leftist desertion of Israel. I can recall, back in 1967 when I was a student at Cal, that things were not so one-sided. Then it was felt that Israel had the right to defend itself. Was that because we had a Democratic President at the time? I think there's something to that: the more closely Israel's fortunes have become connected to American Neoconservatism, the more alienated Israel has become from the (to me, tiresome) doctrinaire Leftists in this country. You can read their diatribes anywhere you look. Some of the more virulent are themselves Jews (Noam Chomsky, Norman Finkelstein.) A very complicated situation.

I always try to simplify the analysis (and identify who it is I'm talking to) by asking the preliminary question: Does Israel have the right to exist at all? I also think this is the final question on the subject, for more complex reasons. But the first question greatly simplifies all that follows. For one thing, it tells you whether your interlocutor is a student of history. Are they aware of the centuries of anti-Semitism and the Holocaust? This at least establishes a framework. Do they favor the ceding of all American land back to its Native Americans? (Sometimes when I drive through Fremont in the East Bay, or even along the Bayshore on the Peninsula south of San Francisco, I think this would be a very good idea, by the way.)

I operate on this fairly simple analysis: had there been no Suez Crisis of 1956, or wars in 1967 or 1973, or the Lebanese problem of 1982, nor any Palestinian intifadas nor terrorist attacks against Israel (which became routine prior to erection of the security walls), then the amount of sectarian, Israeli-Arab violence in the region would have been approximately 1% of what it has actually been. Virtually all of the violence has been of one of two kinds: Arab violence designed to destroy the Israeli state (the wars), terrorism by Arabs against targets in Israel (cafes, discos, weddings, buses, the streets) or delegitimize Israel; or Israeli response to one of the above.

I think that's the big picture. The success of Palestinian propaganda has been to isolate, in the public mind, the response of Israelis to Arab violence as if it existed free of any provocation. I don't quite understand how that has worked. I would concede, of course, that in any long history of more or less constant violence there are going to be a fair number of instances (on both sides) of overreaction, excessiveness and needless killing. Such are the coarsening effects of war and retaliation. It's why violence and terrorism are bad ideas in the first place.

Which takes us to the current "rupture" in U.S. - Israel relations. Netanyahu's brother called Obama an anti-Semite because Obama apparently became upset that Israel took the occasion of Joe Biden's visit to announce the granting of 1,600 building permits for Jewish settlements in East Jerusalem. So it would have been better to wait till he left? I'm not sure what significance the timing has. But it does bring up the question of the West Bank and the "1967 borders." I've done a fair amount of reading about the border issue and about the question of whether Israel's continued presence in (and development of) the West Bank constitutes an illegal occupation. The arguments get very, very involved, and sometimes turn on the construction of little words ("all" "of","the" etc.) in accords and agreements signed at the conclusion of the 1967 war and the United Nations resolutions on the subject. Well, it's kind of interesting actually, so take a look at Resolution 242 yourself:

(i) Withdrawal of Israel armed forces from territories occupied in the recent conflict;
(ii) Termination of all claims or states of belligerency and respect for and acknowledgment of the sovereignty, territorial integrity and political independence of every State in the area and their right to live in peace within secure and recognized boundaries free from threats or acts of force." [3]

Clear, huh? Well, not if you're in my line of work. It doesn't say, in the English version, "all of the territories occupied" in the 1967 war. It says withdrawal from "territories occupied." Surprisingly, there are Jewish lawyers also, and they noticed the same thing. It was a deliberate ambiguity, because the law of war ordinarily imposes a penalty on the aggressor, and there can't be any serious question that Jordan (which controlled the West Bank prior to the war) was practically begged by Israel to stay out of Nasser's Pan-Arabic troublemaking (Nasser killed far, far more fellow Arabs in his various wars around the region than were ever killed by Israel from 1948 to the present).

That's why, instead of the usual map of the West Bank, I present the post-Potsdam Conference map of Germany. Germany gave up 25% of its total land area as the result of its aggression in World War II. No one I've ever heard (except maybe the German high command) ever said this was unfair or inappropriate. Yet returning to Jordan, or Palestine or whatever we want to call the area, the same land which was used to launch an attack 17 kilometers from the Mediterranean (about an 11 mile stretch, which if conquered, cuts Israel in half) is considered Israel's minimal obligation.

I guess my point is that ordinary ways of thinking just never seem to apply to Israel, and I suppose that has to do with the hidden agenda that most people, consciously or not, bring to the discussion. They don't really want to go back to 1948, but that's where they go without saying so. They don't like the idea of a state based on theocratic ideas, whether it's a democracy or not, and they particularly don't like the idea of a Jewish state.

Yet we've done everything we can to establish a state based on Sharia principles in Iraq, where Article II of its constitution specifically prevents any law from being passed which is not consistent with Islamic principles. But it's still full of good things, such as the rights of its citizenry to regain citizenship lost under the Saddamist regime, and the right to dual citizenship. For everyone except Israelis, of course.

March 18, 2010

The wonderful world of Tom Friedman

Matt Taiibi, on his Taibblog, throws this challenge out today (the post in its entirety):

Underlying the latest U.S.-Israel spat over settlements is the deeper — real — problem: There are five key actors in the Israeli-Palestinian equation today. Two of them — the Palestinian Prime Minister Salam Fayyad and the alliance of Iran, Hamas and Hezbollah — have clear strategies. These two are actually opposed, but one of them will shape Israeli-Palestinian relations in the coming years; indeed, their showdown is nearing. I hope Fayyad wins. It would be good for Israel, America and the moderate Arabs. But those three need their own strategy to make it happen.

via Op-Ed Columnist – Let’s Fight Over a Big Plan –

I needed to take a Clonazepam by the second sentence of this opening graf of Friedman’s. God bless this guy. Can anyone else out there recall a more opaque opening paragraph?

I need something to get the wheels turning today anyway, so I'll take a shot at deconstructing Mr. Friedman's lede. Not that Matt Taiibi really needs any help; he's just using Friedman's awful writing as an excuse to make fun of poor Tom, who really is an atrocious writer. It's difficult to imagine, in fact, that anyone would assume Friedman ever has the faintest idea what he's writing about, given the tangled verbiage his "thoughts" always get hung up in.

Anyway, Friedman has divided the Israel-Palestine actors into three distinct groups. Group 1 is the Palestinian Prime Minister, Salam Fayyad. The second group is the alliance of Iran, Hamas and Hezbollah. The third group is comprised of Israel, the USA and moderate Arabs. The confusion which has led to a pharmaceutical time-out for Matt Taiibi was caused by Friedman's use of the term "actors," which he quantifies as "five" in number. This is where things got a little dicey.

To arrive at "five actors," you have to treat Iran, Hamas and Hezbollah as one entity; however, Israel, America and the moderate Arabs, although they must develop a single, joint strategy and are thus presumed to be acting in a coordinated fashion, much as the Iranian, Hamas and Hezbollah actors are acting, are counted as three actors. Thus, to recap:

Actor 1: Prime Minister Fayyad of Palestine.

Actor 2: the group of Iran, Hezbollah and Hamas.

Actor 3: the United States.

Actor 4: Israel.

Actor 5: moderate Arabs.

Actor 1 has a clear strategy, as does Actor 2 (the Troika of I, H&H). These strategies are opposed, but one will win and "shape" the Middle East for years to come. Tom hopes that Fayyad wins. However, Actors 3, 4, & 5 need their own strategy to make "it" happen. I think the antecedent of "it" in this case is Fayyad's victory.

There you have it. Admittedly, it was a somewhat opaque introduction to the column. Friedman might have used the word "group" or "faction" and described three separate positions: Fayyad and the moderate Palestinians; I, H&H; and Israel, the USA and moderate Arabs, by which I think (but I can't be certain) that Friedman is referring to Arabs other than those who live in Palestine, such as Tom's friends in Saudi Arabia.

Other than that, I think Tom might have written this column in 1976, 1985, 1990, 1992, 2000, 2002, 2004 and yesterday, just to throw out a bunch of random dates. When he's out of topics, he flies to Israel, has lunch in Jerusalem and writes a Mideast column. This may account for the additional sloppiness of what he wrote: even Friedman recognizes the essential meaninglessness of his "prescriptions" for a "solution." Golda Meir found the solution in 1973, when she gave the go-code and loaded nuclear bombs onto Israeli bombers. Netanyahu fought in that war, and there is no way that Bibi is going to cede any land to Palestine, now or in the future. I guess he's in "Group 3" and is part of "Actor #4," and he's the one currently calling the shots, so I would say that "strategy" is set.

So, Tom: you already know what Strategies Nos. 1, 2 & 3 are. How does it turn out?

March 17, 2010

A perfect miasma of chaos

I haven't written this thing much lately, mostly because I've lost the thread. I do notice what's going on, or at least what I think is going on. The country has become so absurdly ideological that discerning facts (or the signal through all the noise) has become almost impossible.

For example, one great debate raging among economists is whether the Keynesian approach, typified by Paul Krugman, or the Austrian approach, epitomized in the writing of Friedrich Hayek, is correct as it applies to a monetarist approach to the Great Recession. Krugman wants to go all in, and his ideas, for a while, carried the day: the government must stimulate the economy back to a sensate state, by heavy deficit spending. Hayek and his ilk, on the other hand, believe this is folly. All that we are setting up is a hyperinflationary binge by increasing the Federal Reserve Bank's balance sheet from $800 billion (held mostly as Treasury securities) to its present $2.3 trillion, with most of that increase coming in the form of mortgage-backed bonds the Fed has found lying in the street or in overflowing dumpsters around the nation. In truth, Bernanke's experiment is unprecedented. Should the central bank actually own the American mortgage business, lock, stock & barrel?

Krugman may have found it easy to recommend a huge stimulus bill, on top of what was almost certainly a completely unnecessary $700 TARP bill to bail out close personal friends of Hank Paulson, because this venerable Nobel Prize recipient does not actually understand the problem with the national debt. Or if he does, he's amazingly cavalier. The problem that I see is that so much of ARRA (linked to the right) went to propping up state budgets and state payrolls. As I've said, the humanitarian instincts were good, but the Hayek people might have the last laugh. Because after that money is spent, and all those teachers, firemen and cops are kept on the payroll for one more year, what then? Not very much of the money actually represented a capital investment in activities that might "create" new jobs. The money will run out, if not this year then next, and the truth is that the stimulus bill simply anticipates that the Great Recession is simply cyclical, like all others. It will go away because recessions always do.

I'm not sure of that at all. The current stabilization and moderate stock market performance are probably the result of a "melt-up." The American economy has been flooded with fiat paper from the central bank and it has to go somewhere, although the actual stock activity on the exchanges is anemically small. Treasuries pay next to nothing, unless you want to hold them for a dangerously long period (that is, long enough for their paltry returns to be swamped by the coming inflation). Banks and money markets effectively pay zero interest; some of them simply are safer than mattresses (Simmons Beauty-Rest and Sealy Posturepedic pay almost as much in interest, however). Employment has not really gone down appreciably, although the Obama people are convinced that the payroll situation will begin to improve this spring.

And if it doesn't? I've thought for some time that what's really going on is that the housing boom permitted a postponement of the real effects of America's collective decision to hollow out its industrial base, ship it offshore and allow its working class to go bust. The postponement was accomplished by debt, something else that never occurs to the Nobelist. The collateral for all that debt has deflated, and now the country is awash in red ink. The banks (which we absolutely, positively had to save!) don't lend money to anyone, and the reason for that is that no one really wants to borrow. And if they did, against what? The 2005 appraisal of their house?

I really hope I'm wrong and that the magical thinking which apparently comprises the sum and substance of our economic approach is....right. Because if it's not, then the U.S. government will have taken on about $1.4 trillion in additional debt, above and beyond its usual gargantuan budget, at a time when its actual revenues (taxes) are falling through the floor, its Social Security and Medicare entitlements are underwater and 17% of the country is unemployed. So that if prosperity is not around the corner, it might be something more ominous.