Greenspan says deficit too large

Which side of Greenspan's mouth did this come out of?

 

Maybe he should have thought of that before he preached about how great the tax cuts were. You mean taking in less money causes deficits? Who knew???

 

He stated that the tax cuts will help as long as spending is kept under control.

 

While I admire the man a great deal, it would be nice to have him stick to the dry, economic jargon on monetary policy and quit giving his views on fiscal policy. I was listening to Marketplace last night and even some conservative from the American Enterprise Institute was saying how Greenspan has been much more vocal with his personal opinions on fiscal policy than previous Fed chairmen have been. Here's hoping that Kerry gets elected and, in two years when Greenspan's term is up, Kerry appoints Joseph Stiglitz to take his place.

 

I think Greenspan is one of the best Federal Reserve Bank chairmen we've ever had precisely because he speaks his mind. One of his greatest assets is that he is not political - he doesn't care if he pisses off Republicans or Democrats.

He's absolutely right about Social Security - if drastic measures are not taken, it will be completely insolvent by the time I'm 65, which is only 23 years from now. He's also right about the deficit, it's way too large.

The problem is that when he says something like the tax cuts should remain permanent, he says it in a way that indicates he means AFTER the deficit is gone and after Social Security is fixed. But the media hear one thing and report it is the only thing he says - "Greenspan says tax cuts should be permanent."

If you read the entire transcript of what he said yesterday, he said that it should ONLY happen if the budget is once again balanced.

Oh, and for some great insight into the man, read this:

 

I read most of Greenspan's speech and you're WRONG.

He said,"For about a decade, the rules laid out in the Budget Enforcement Act of 1990, and the later modifications and extensions of the act, provided a procedural framework that helped the Congress make the difficult decisions that were required to forge a better fiscal balance. However, the brief emergence of surpluses eroded the will to adhere to those rules, and many of the provisions that helped to restrain budgetary decisionmaking in the 1990s--in particular, the limits on discretionary spending and the PAYGO requirements--were violated more and more frequently and eventually allowed to expire. In recent years, budget debates have turned to choices offered by those advocating tax cuts and those advocating increased spending. To date, actions that would lower forthcoming deficits have received only narrow support, and many analysts are becoming increasingly concerned that, without a restoration of the budget enforcement mechanisms and the fundamental political will they signal, the inbuilt political bias in favor of red ink will once again become entrenched."

And, more to your exact point, his 3rd to last paragrapgh stated, "I certainly agree that the same scrutiny needs to be applied to taxes. However, tax rate increases of sufficient dimension to deal with our looming fiscal problems arguably pose significant risks to economic growth and the revenue base. The exact magnitude of such risks is very difficult to estimate, but they are of enough concern, in my judgment, to warrant aiming to close the fiscal gap primarily, if not wholly, from the outlay side."

While it could be plainer and simpler, it states that the Congress should make the tax cuts permanent and that Congress should go back to its '90's style management of limits on discretionary spending.

He didn't say to 1st balance the budget by raising taxes. He was explicit. He said explicitly NOT to raise taxes. Please tell me where in his speech did he say to balance the budget first?

 

He's blaming deficits on tax cuts combined with frivilous spending.

He's not ruling out tax increases or rolling back the tax cuts. He's describing that doing either could be problematic.

Read the second to last paragraph again:

The sentence I bolded, if you cut through the economic doublespeak, means you have to either cut spending or increase taxes. His next sentence is leaving it up to Congress to decide which to do.

 

Read the second to last paragraph again:


quote:
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The dimension of the challenge is enormous. The one certainty is that the resolution of this situation will require difficult choices and that the future performance of the economy will depend on those choices. No changes will be easy, as they all will involve lowering claims on resources or raising financial obligations. It falls on the Congress to determine how best to address the competing claims. In doing so, you will need to consider not only the distributional effects of policy change but also the broader economic effects on labor supply, retirement behavior, and private saving.
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From my college economics classes, the definition of resources would be the private sector. The term "claims on resources" usually mean taxes, or government claims on private property. I believe in this context though, Greenspan means claims by the baby boomers for social security handouts or claims by other people for other govt. spending programs.

The definition of financial obligations usually means loans, bonds or debt of some sort. In this context, I think Greenspan may mean raising debt levels or raising taxes.

I think this is really a summation paragraph that means that it's "easy" for politicians to placate the boomers and keep social security spending and other govt programs at their current pace. The tough choices and the best economic choices would be to make the tax cuts permanent and lower spending and enabling the owners of capital to allocate their scarce resources as best they can.

Of course, the best course of action for the country in terms of economics is not the best course of action for politicians trying to get re-elected. Therefore, we have the economic quagmire that we presently have.

 

So Mike, let's say you just had a nice tennis game with Mr. Greenspan -- he has pretty good court coverage and backhand for a guy in his late 70s, I am told -- and you were talking over a nice cold glass of lemonade after the match, and you asked him,

"Say Al" -- all his friends call him Al -- "what would you put most emphasis on in balancing the Federal budget, cutting spending or raising taxes?''

How do you think he would answer?

Of course, his answer is obvious, despite the contorted efforts of some to read into his speeches what they want to read into them.

 

I have no doubt his answer would be depend on whatever the situation revealed. You act as if it's a zero-sum game, Karl, which it is not. He is fiscally responsible to undertand that cutting taxes AND increasing spending at the same time is economic suicide though.

And I've never played tennis with the man, but my wife and I did happen to sit at a table next to his and Andrea's one night at Galileo about four or five years ago. I said hello to both of them. They seemed very nice.

We didn't discuss the economy.

 

It is difficult to argue what may be a better economic plan when we can't even agree what the Fed Reserve chairman stated.

But,............

A) I think we can all agree that the party that is out of power in congress is the one that is most concerned with balancing the budget. This was true of the republicans prior to 1994 and democrats today.

B) "Incumbents" on both sides of the aisle enjoy spending as they feel that they need to write to their constituents and tell them how much money they will be bringing back to their districts in order to get re-elected.

C) Coming out of a recession, both parties agree to use Keynsian methods of getting out of a recession which is based by and large on govt. spending.

D) The Soviet Union should have taught all of us who have gotten used to using modern conveniences, e.g. toilet paper, a few things.
Since most govt. spending is inherently wasteful, I prefer less spending then more spending.

E) Both parties are ####. But one at least pays lip service to allowing private property. The other proffers a bigger version of a "managed economy."
Maybe one day, before our nation falls to pieces a third party or a third way will emerge based upon a pure form of capitalism.

 

Most of the Soviet Union had toilet paper. But thanks for the canard.

What an inordinately stupid thing to say. Most government spending is NOT inherently wasteful. It can be inefficient. However, the CCCP's problem was not just that the spending was inefficient, its that the incentives in the whole system were set up so incorrectly. It has no bearing on the current problem.
Is government spending inefficient? Of course; all spending is inefficient to a degree. However, in certain things, the government likely has an edge over private entities. Social welfare, for instance - I don't want medicare or housing subsidies to be run through Microsoft or GM. And I also don't want our national defense run through that way either.

These sorts of statements always illustrate how little people actually understand about the government. Most of its spending is not discretionary. So tell me, which Federal programs would you privatize? Social security wouldn't help, because the government doesn't technically spend anything on it - it just cuts checks to retirees. So then were exactly is the government oh so horribly wasteful?
The lesson of the CCCP was that if you completely screw up your incentive structure, the result will be catastrophic. That is not our problem. Go back to thinking of toilet paper.

 

Simply put, I calculated my social security contributions. If I received an 8% return, when I retired in 2023, I could receive $ 22,000 per month based upon a 5% return at that time without ever touching the principal. The US govt. says I can expect $3,000 per month for the same contribution.

Oh, yeah, that guy Greenspan just said that the system may go bankrupt so I may not even get that paltry $3G's a month.

That's not wasteful is it? Of course it's not.

IT'S NOT YOUR MONEY!!!!

 

WTF are you talking about? Since when are you guaranteed a positive return on your money? Who knows what can happen. The whole point of social security is to ensure that its THERE. If you're smart enough to do the math, go and invest for yourself. You can invest as much as you want - your 401K contribution should be bigger than your social security contribution. (I don't care about social security personally, so if I'm wrong feel free to correct me. But I'm pretty sure I don't pay more than 10K in social security taxes, while I can put more than 10K into my 401K this year.) So if you're wise and you invest, you have nothing to worry about.
Of course, nothing could ever go wrong with privately run companies. Ask some Enron employees if they'd rather have had their money in T-Bills or in Enron stock. Enron is private, so I guess they'd say Enron, right? Right?

As for "its not your money" - again, what ARE You talking about?

As for the system going bankrupt, don't ask me. I'm not the one that lowered your taxes. If your whole point is that social security, which is PAID FOR ITSELF, and therefore isn't spending, is inefficient, fine. But what does it have to do with government SPENDING?

 

Simple spejic - you forget that the economy is the national economy. If only it were run privately, it would get a far better return. I say - privatize the Fed! Its really inefficient you know - instead of 2.5% growth we can get 5%, easy!

 

Real Rates of Return

Ok, guys. Please listen very closely because you don't seem to know how ripped off you've been.

First, let me say that from 1926-2002, the S&P 500 has returned an AVERAGE 12.2%. Go to trustlynx.com for the figures. So, if a financial neanderthal puts his/her money into an S&P 500 Index fund, they wouldn't need to know very much to get an 8% return over time, would they?

Nicphoras, please don't confuse GDP growth rates and reutrns on stock investments, they are related but different.

Spejic, you asked, "where in the world do you get an investment returning 8% a year?" I just want to make sure that you realize that the S&P 500 is based on US stocks.

Nicephoras, 8% is not guaranteed, but it's got a 75 year track record at about 12%, so I guess I'm being conservative (if that's not a bad word around here).

As far as social security contributions go, nicphoras, I max out on my limit each year because in NYC hitting the limit puts me squarely in the middle class. When I hit the $7,500 ceiling, please note that my employer also pays $ 7,500 in what's called a matching contribution. So, effectively,
$ 15,000 per year of my compensation goes to social security.

Also, when SS was started 22 pworkers paid for 1 retirees benefits. Now it's 3 workers to 1 retiree. For me to get benefits, my kids will probably be taxed 25% instead of 8%. That's not too good for their future or mine, is it?

Also, I left out my wife's contributions in my earlier calculation. So, if I was able to invest that $$ privately we'd get over $30,000 per month and still have millions left over totally untouched to give to charity or our children or to whatever we wanted.

One other problem is that SS does not pay for itself. That's a lie told to you by politicians. That's why Greenspan was talking about it yesterday. It's a huge problem that all politicians want to avoid. Wake up. If you're younger than me, I'm 42, you're in worse shape than me.

I hope that answered some of your questions. If you have any more, I'll be happy to answer them.

 

Re: Real Rates of Return

OK, I'm a neophyte, so forgive me if my two quibbles are stupid.

First, does this account for inflation. But that's a minor point.

Second, is it today's S&P 500? Because if it is, then you can see why this is ridiculous. By defintion, today's S&P 500 are gonna be successful companies if viewed over the last 78 years. Packard Automotive isn't in today's S&P 500. Neither is Enron.

 

Re: Real Rates of Return

If this was true, how could ANYONE ever lose money in the market? dave's point is correct - the S&P isn't a great measure, not to mention the fact that inflation wipes out much of that gain. Yes, you might have that 30K you're talking about, but how much would it buy you?

If everyone suddenly invested in the market (and bypassing the hideous bubble issues that would arise) when the boomers retired and pulled their money out, the market would not have a particularly pleasant reaction.

Its not as fancifully simple as you're making out to be. That's why many economists, who're generally not big fans of governmental programs, aren't so hunky dory with social security privatization.

But the problem is, you still haven't answered my main point. What does ANY of this have to do with "spending"?

 

Re: Re: Real Rates of Return

The 12.2% does not account for inflation. The infaltion rate in the US from 1929-2000 is an annual average rate of 3.25%. For info, see http://www.eh.net/ehresources/howmuch/inflationq.php

Per ssa.gov, in today's dollars, I'll get $1,443 per mo. or $17k per year at age 62. Accounting for inflation (in 2023 $), I'll get $3k per mo. or $36G per year from social security starting in 2023.

So, privately investing very conservatively and only getting 2/3 (8% of 12%) of the annual average S&P return, if I lived in a free country where I could freely invest my capital instead of the govt. "investing" it for me, I'd have $360,000 per year in retirement vs the government's $36,000 per year in retirement.

Additionally, I'd have over $ 7 million to distribute to my children, charity, etc. In the govt.'s case, there is nothing left over.

As for Enron, there will always be unsrupulous people in this world. But, the S&P 500 changes every year. Companies are added and deleted based upon different criteria. An Enron or WorldCom will hurt the returns but only to a small degree and only for a small period of time.

Look, if someone can make 10X what the govt. is giving you with a conservative portfolio, let's say they screw up. They make only half of that. That would still be 5X more than the govt.

On top of all that there's still all that cash left over. If the govt. is basing their calculations on paying out for 20 years (assuming in 2023, people will live to 82), then to make a truer comparison, we should take the $ 7 million and add it to the 240 months that the govt. figured they'd have to pay.

So that would add another $30,000 per month. So we're comparing $ 720,000 per year in retirement to $ 36,000 from the government.

I don't know about you, but if I could, I would take my chances.

 

Dear Al:

Tel ya what... I'll consider cuts in Social Security AFTER we eliminate all corporate wealthfare and wasteful spending regarding the military maintenance of our global empire.

Try to use your knowledge of Ayn Rand to help you ask yourself why McDonald's needs millions of our tax dollars to market Chicken McNuggets in Singapore, for example. Isn't McDonald's and not the US govt responsible for McDonald's marketing? And that's just the tip of the iceberg. It's time to teach corporate America some personal responsibility and to stop living off the trough of government handouts. If it's good for the homeless, it's good for the CEOs.

And we all know what a wasteful black hole the Pentagon is. Any organization that admits it just "lost" billions of dollars needs a good looking at. Maybe we should just privatize the Pentagon. Anyway, try rationalizing and slimming down that mess first before you go screwing the elderly.

Oh, and Bush's tax cuts are wank and you know it, even if you are a Reep. Enabling him is just gonna get us and our grandkids into more and more trouble. It's time to break the cycle of co-dependency and try to talk some sense into that boy next time you see him.

Thanks!

JoePa

 

Re: Re: Real Rates of Return

1) The rate of return is over years, some years, you lose, some you gain, overall you gain.

2) Why is Dave's point correct? Because Enron existed, you would not invest int he 499 other stocks that make money. If you swore off women, because you met a witch, you'd never get laid.

3) Inflation wipes out much of that gain, huh?

Let's see the govt.'s $ 30k per year becomes $ 17k per year. My $720k per year becomes $346k per year. 20X is still 20X.

4) When the boomers retire and pul their money out.................... You must be a long way away from retirement.

The USA has created longevity for its people thru advances in healthcare. That means we're all, on average, living longer. If you're in you're 20's, you're probably going to live to your 90's and could easily go over 100. That means when you retire at 62, you have to find a way to feed yourself for another 38 years. That means that you can't stop investing at 62. It just means that you change the mix of those investments. In other words, there will be no great wooshing sound when baby boomers retire.

5) Since you haven't identified an economist or n idea, I have no answer because your question has no basis.

6) What does this have to do with spending?

Well, the median US wage per our govt. http://stats.bls.gov/oes/2000/oes_perc.htm
is $41,600. That means 50% make more and 50% make less.

If the median wage of $41,600. If we assume that 15% of that goes to the SSA, then 15% of $41,600 is $6,240 per worker, and that $ 6,240 goes to SS annually. If that were to be privately invested for 40 years, and then withdrawn, with a 0% return on investment, they'd receive $7,275 per mo. (or $ 87k per yr) for the next 20 years.

In other words, the govt. cannot even come close to the private sector.

What does this have to do with spending? 100 million workers @ $6,240 ea. is 624 BILLION $$$ worth of spending the govt. does by using their social security income to cover up their deficits. At the same time, they give back a rate of return that only the Kremlin would be proud of.

If we could put and additional ANNUAL $624 Billion in the hands of productive people, how good an economy could we have? That's what it has to do with spending.