June 10, 2003

Notes: Turning Japanese

The Institute for International Economics's Adam S. Posen worries that Germany is turning Japanese--that Germany today looks a lot like Japan in 1994...

Posted by DeLong at June 10, 2003 09:46 PM | TrackBack

Comments

An interesting read, and the analysis is good. I'm just not sure the suggested solutions, which seem to involve yet more pro-growth nagging by the American government, are that convincing. And it takes at face value the Commission's ridiculous pretensions to leading liberalisation in Europe.

The American government constantly moans at other countries to boost growth, and has done for at least the past 25 years. Sometimes this has had small effect, and sometimes none, but it's certainly a good way to get foreigners' backs up. Sometimes it has been downright harmful.

At the end of the day, can it ever be right for one government to nag another, democratically elected government over economic policy, however tactfully it is done? The German people have spoken, and elected somebody whom we might believe to be an incompetent chump, but that's the person with whom we have to deal. The British government is currently nagging other governments over European micro regulation, so it's a question of more than isolated interest.

Posted by: PJ on June 11, 2003 04:35 AM

Adam Posen always has interesting things to say. A good read, indeed.

Still, I wish he'd spent more time on the politics of reform in each country. In the Japan case, political constituencies have a remarkable ability to block or veto structural reform measures that might advance the common cause. This inability to spread the pain is a large component of the more frequently written about macro story.

I find myself wondering how much of this logic applies to the German case. Nobody is denying Germans the right to elect whoever they wish, but we ought to know if the result will always be an avoidance of structural adjustment.

Posted by: Jim Harris on June 11, 2003 05:45 AM

"Japanís economic troubles have been neither accidental nor inevitable. Instead, they are the result of politically driven and economically self-defeating policy decisions that turned a normal recession following an asset-price bubble in 1992-94 into a severe and accelerating decline."

Looks like another vote for the root of Japan's problem being a "statism trap", as per the analysis linked to on Arnold Kling's blog, rather than a liquidity trap.

"The bank-dominated financial system in Japan ... has given aging savers little or no return on their assets, thereby sapping consumption as well."

I've pointed this out before. If you want to have saved up $X (or X yen) by the time you retire 20 or 30 years from now, how much more do you have to save getting 0% or 1% interest than getting 4% to 6% or so on average from a mix of investments? Subtract that from consumption.

The structure of an economy as arranged by the government and political interest groups matters. It's not all just IS/LM curves and monetary policy (which, after all, is neutral in the long run).

Posted by: Jim Glass on June 11, 2003 06:30 AM

I'll have to finish this paper later. So far, though, my favorite quote from the thing is this:

"...Japan is a society in which the relatively wealthy old exploit younger workers, politically over-represented rural residents exploit urban populations, and incumbent businesses and workers exploit their current relationships to exclude new entrants. This pernicious system is enabled and reinforced by a process in which LDP politicans funnel public largesse and tax breaks to these older and rural voters in return for political (and personal) contributions and safe re-election."

I don't know about you, but I could easily imagine a passage just like this one appearing in at least one shrill economist's bi-weekly column, with a couple of names changed to humiliate and enrage certain domestic interests. Pretty scary.

Posted by: Jonathan King on June 11, 2003 07:18 AM

>The structure of an economy as arranged by the >government and political interest groups >matters. It's not all just IS/LM curves and >monetary policy (which, after all, is neutral >in the long run).

Over the last few weeks, I have started to see
this general opinion cropping up in several posts. I was not sure who exactly it is who ignores the "structure of an economy" to focus on "just IS/LM curves" but I think Jane Galt finally came out and said that it was liberal economists like Brad DeLong and Paul Krugman who ignore such real world developments.

I think the notion that liberal economists ignore the real world (while conservative ones presumably are always grounded in reality) to be a laughable caricature so I won't go into that any more, especially since Jim did not seem to be making such a claim in his post.

I do have to say that Japan's problems lie both with a liquidity trap and with a statist trap. I am not sure that debating whether one OR the other is the problem is very helpful.

The statist policies on import liberalization, financial reform, labor regulations etc. can either push an economy into a slump or more applicably (in Japan's and Germany's case) make the recovery from a slump more difficult and drawn out. That would not be a decade long slump inducing problem if the monetary channel was open: after all the statist problems in Germany and Japan (which is a curious case since it had a dynamic eternal sector combined with a very rigid internal sector) are not new. It is the combination of a liquidity trap and a 'statist trap' (or more accurately since the problems go well beyond the state: an 'inertial' trap).

Similarly a liquidity trap makes monetary policy ineffective but has the side-effect that fiscal policy and spending become more effective because of the fact that nominal interest rates don't rise in respond to increased spending in liquidity trap settings. Adding the woes of the banking sector and consumer inertia to the situation, however, makes the fiscal policy magic bullet goes away. Once gain it is the combination that matters.

This is why I don't believe that the cases of Germany and the United States will resemble Japan. Germany may have an inertia problem like Japan but it is not in a liquidity trap. Given another negative shock, the U.S. may find itself in a liquidity trap like Japan but it does not have the same inertia problem.

To expand more on this, Posen makes a strong case that the statist woes of Germany are similar to Japan. That may well be true but the real problem for Germany right now is that the ECB has it in a straightjacket: the strains on the real economy are showing because the traditional boost to the recovery coming from monetary policy is absent and the real economy has to do all the heavy lifting itself. Take away the ECB straightjacket and many (but obviously not all) the stresses on GErmany will go away.

Same with the U.S. even if we face a negative shock after the Fed cuts rates to zero and we are still not seeing enough demand, the economy should be flexible enough to make the adjustments to recover unlike Japan. This will of course only be true if the U.S. does not have inertia problems like Japan: the government has fiscal ammo left, consumers don't have crushing debt burdens and banks are not saddled with bad loans.

So IMHO, there is nothing to be gained by making this a statist vs. liquidity trap debate. The combination of the two is deadly; smart economies should preserve as much monetary and real flexibility as possible for dealing with economic downturns. Thank goodness that Gordon Brown and Tony Blair seemed to get it when they decided not to join the EMU this year!

Posted by: achilles on June 11, 2003 08:36 AM

Let us call the essay "why are the people of Japan and Germany so awfully stupid." Phooey. Japan and Germany are democracies, though many Americans and Britains have not realized this. Not only are these countries democracies, but they contain a wonderfully high percentage of well educated women and men. I suggest trying to understand the Japanese and Germans and not pretending we are all so wonderfully superior.

Posted by: anne on June 11, 2003 09:17 AM

Yes, folks, worry about us!

http://www.nytimes.com/2003/06/11/politics/11BUSH.html

...The House majority leader, Representative Tom DeLay of Texas, rejected a demand from the administration that the House pass the Senate bill, which would provide an increased child tax credit to 6.5 million low-income families.

"Ain't going to happen," Mr. DeLay said this afternoon, reiterating his stance that the credits would be approved only as part of a much larger tax-cut bill, an $82 billion package that House Republicans unveiled later in the day and plan to bring to the floor....

Posted by: lise on June 11, 2003 09:28 AM

Anne writes:
>Let us call the essay "why are the people of
>Japan and Germany so awfully stupid." Phooey.
>Japan and Germany are democracies, though many
>Americans and Britains have not realized this.

Wow; I guess I was really mis-reading this paper. Seriously, I did not catch this at all. I caught a whiff of "we in the US are superior", which I'm not so sure about and the reason I made my other post on this.

That said, I think it is important to note, as this paper does, some systematic and possibly troubling differences between Japan, Germany, and the US that could help explain why Japan has had (and Germany might have) such real problem with deflation. So Japan is a democracy, but I don't think you can just wave away the fact that it has had essentially one-party rule by the LDP. Japan has a central bank and central bankers, but its clear that the system seems to work (and respond to crises like this) very differently...and so on.

>Not only are these countries democracies, but
>they contain a wonderfully high percentage of
>well educated women and men.

Yes, but all I think this shows is that intelligence and education are not by themselves sufficient to avoid liquidity traps or (maybe) devise government strategies for dealing with such situations. It's also quite possible that the Japanese and German systems can lead to economies that out-perform many or most others under some situations, but do contain structural features that make it difficult to react appropriately to an oncoming deflationary scenario.

That's actually what I thought the paper was really about. I mean, there must be some reason why it's Japan and Germany that are having these problems rather than other countries that have faced apparently similar situations and not slipped as far towards deflationary spirals. (And, that said, I don't mean to suggest that the US would be immune from this, but we're clearly not in Japan's shoes yet.)

Posted by: Jonathan King on June 11, 2003 10:59 AM

rather than just blaming it all on the japs and germans, lets remember the international aspect.

In the early 1990s, as Japan started to enter its "difficult period" the US pressured it to maintain a strong yen.

Similarly, as Germany took on the Eastern burden, the EU (France) saddled it with an over valued mark.

Posted by: Giles on June 11, 2003 11:13 AM

Giles, while it is quite possible that the DM was overvalued in the Euro, the incorporation of Eastern Germany money at parity was an internal german political decision of Kohl.

DSW

Posted by: Antoni Jaume on June 11, 2003 11:28 AM

Jonathan

I well agree with your economic analysis. Nicely done. The problem I have is with a pervasive set of writings that pretend that economic policy can be detached from political realities and, importantly, that economic solutions are easily attainable in Japan and Germany if only employment security is sacrificed.

Yes, I agree with your fine analysis. No, I do not think that an approach by Japan that protects employment is the most important problem. Japan is opting for gradualism in structural change. My goodness, this lowers growth perspectives for years but is politically realistic. I would have preferred the Bank of Japan target a specific low inflation rate and try for it in the late 1990's.

Posted by: anne on June 11, 2003 11:34 AM

On rereading the paper, I think I was a little too kind in my post above. The suggestion, in particular, that the should US practice "reverse linkage" is wrong for two reasons: firstly, it is dangerously close to extortion and blackmail (imagine how America would complain if foreigners practised those tactics on it!), and secondly there wouldn't be domestic political support for it. There was political support for exerting pressure on Japan because of its transparently unfair trading practices and opaque politcal system, and the Japanese had to give in because of the importance of the American market to its exporters, and of the American security guarantee against Russia and China. Germany doesn't really need American military protection any more, and has an open trading system (or as open as the EU will allow it anyway). Also, the French would use the opportunity to bond with Germany and manipulate the EU into retaliating against the US.

He's probably also overly downbeat about Germany's political system. At the end of the day, Japan's ever-revolving, never-evolving governments are far more like Italy's than Germany's. Over the medium term, the Germans will probably get a handle on their problems. Of course, I've no evidence for this prediction. The German officials I've met seem at least to understand basic economics.

Kudos to him, though, for recognising the damage that American sanctimoniousness does to whatever message America wants to promote abroad. During the Denver economic summit, foreign delegates were treated to a particularly irritating monologue on the superiority of the American economic model by that sleazy crook Clinton. One of the German delegates remarked something like, "they tell us how great their economy is doing. Then they tell us it's too dangerous to leave the hotel at night".

Anyway, Germany may recover over the medium term, Japan may not, but I've got to say that the balance of evidence is that it'll be up to the insatiable American and other English-speaking consumers to maintain world aggregate demand for the next 3-5 years.

Posted by: PJ on June 11, 2003 12:17 PM

Giles

It is true that the yen appreciation of the early 1990's caused its exporters a difficult period but why do you say that the U.S. pressured the Japanes government to overvalue the yen? I was neither aware of any Central Bank intervention nor of any international political pressure of this sort.

Posted by: Hal McClure on June 11, 2003 12:58 PM

Minor ex-celebrity Shannon Doherty hosts a little reality cable show in which friends into staged horror situations and enjoy watching the victim freak out.

Shannon's quirky little money line for the promos? "Laugh it up... you could be next."


Posted by: a different chris on June 11, 2003 01:54 PM

Deflation is in part a function of demographics, which surprisingly aren't mentioned at all in Posen's report.

Think of it this way: remember how the simple case for real estate is based on the fact that "they aren't making any more of it?". Whatever truth that observation has is based on an increasing population increasing demand for real estate over time. But if population shrinks rather than grows, what does that imply for demand for long-life assets such as housing, autos, household appliances etc?

The Japanese labor force peaked in 1998 and should shrink steadily into the future. Given that mathematical fact, it's almost impossible for Japan to grow aggregate demand over time.

Posted by: Anarchus on June 11, 2003 04:56 PM

You beat me to punch Anarchus. I too found strange that demographics arenít featured.

Some of Krugman's musing re: Japan note the mismatch between saving and investment, which, at the root, is underpinned by an aging population. One could argue that Germany is potentially approaching the "tipping point" that sends it down the same path.

However, to compare Germany directly to Japan seems to be a stretch. Japan has not absorbed an LDC (increasing it's population by 30% or so) that has undergone political/psychological trauma for 50 years and is out of synch with a predominantly market economy. Sure, Germany's labour market may not be flexible and its approach may be statist, but what is the alternative? Telling 18 million Eastern Germans that they'll be OK on two generations?

Sometime political reality needs to be added to the constraint before optimizing.


Posted by: Stephane on June 11, 2003 05:50 PM

">Not only are these countries democracies, but
>they contain a wonderfully high percentage of
>well educated women and men.

"Yes, but all I think this shows is that intelligence and education are not by themselves sufficient to avoid liquidity traps or (maybe) devise government strategies for dealing with such situations."

Not all the externalities of education are positive. As David Friedman points out, one of the negative externalities of education is that the more highly educated and experienced are more highly schooled and skilled at influencing politicians and gaming the system for their own benefit, at others' expense. Just look at the tax-and-distribution patterns in any modern state, and the groups that get protected. Japan and Germany are cases in point, but of course the U.S. is too.

"Well educated" does not mean "beneficent" and "putting the public interest before our own".

(Heck, just look a the immense subsidies and protections that the education sector collects.)

Posted by: Jim Glass on June 11, 2003 07:00 PM

"I've pointed this out before. If you want to have saved up $X (or X yen) by the time you retire 20 or 30 years from now, how much more do you have to save getting 0% or 1% interest than getting 4% to 6% or so on average from a mix of investments? Subtract that from consumption."

Are the Japanese unable to invest abroad?

Posted by: Jason McCullough on June 11, 2003 07:04 PM

Who's protected - well, in the US, farmers are protected and subsidized, as are rural regions.

Posted by: Barry on June 12, 2003 04:15 AM

I've long thought that demographic influences often get underestimated by macroeconomists - it's good to see others think so too. Most concern expressed about aging is on pension finance, but I think the implications go way beyond that - for one thing, risk aversion becomes much more pronounced.

Of course, the gloomy thing about all this is that ALL developed countries are aging - Japan and Germany are just among the first to suffer a sharp transition. Many other countries will suffer this transition in the next couple of decades.

Posted by: derrida derider on June 12, 2003 04:16 AM

DD it's more than just aging, though aging is part of the problem.

Most developed nations (excluding the U.S.) have fertility rates far below the steady state rate of 2.1 - with some countries such as Spain and Italy down around 1.2-1.3. Most of the Big Euro countries such as Germany, Italy and Spain will see their total native populations shrink by 10%-12% over the next 20 years! That's absolutely unprecedented, and it doesn't bode well for aggregate demand in those countries.

BTW, Dr Ken Henry the head of the Australian Treasury, has been putting out some great stuff analyzing the impact of demographics on potential GDP . . . . . . .

Posted by: Anarchus on June 12, 2003 08:45 AM

If the native population shrinks while the total population stays flat or grows (immigrants), I don't think there'll be an effect on agg demand at all.

Posted by: Jason McCullough on June 12, 2003 10:55 AM

We shouldn't forget that demographers have an even worse record for predicting long term trends than economists, and only slightly better than climatologists. I remember reading a study of the projections for the UK population in 2000 made since 1870. They said 100 million in 1870, 11 million in the 1940's, and 50 million in 1980. The actual number was 58 million.

And I once read that the US population in 2025 would be 250 million, whereas it looks more like being 340 million. Almost as bad as the people who were projecting a new ice age in the 70's.

As Lord Salisbury once said [from memory], "there is nothing so throughly taught by life as that you should never trust experts".

Posted by: PJ on June 12, 2003 12:42 PM

From the paper, "...Japan is a society in which the relatively wealthy old exploit younger workers, politically over-represented rural residents exploit urban populations, and incumbent businesses and workers exploit their current relationships to exclude new entrants. This pernicious system is enabled and reinforced by a process in which LDP politicans funnel public largesse and tax breaks to these older and rural voters in return for political (and personal) contributions and safe re-election."

Jonathan King comments, "I don't know about you, but I could easily imagine a passage just like this one appearing in at least one shrill economist's bi-weekly column, with a couple of names changed to humiliate and enrage certain domestic interests. Pretty scary."

Yes, but that very SAME economist promotes programs and policies that CONTINUE many of the problems (e.g., transfer of wealth from the young and poor to the older and better-off):

1) Social Security, as currently run, involves a massive transfer of wealth from the poorer young to the wealthier old (and from the black to the white, for that matter...notice how THAT is never mentioned by the shrill economist!), and

2) Medicare...even ADDING to the transfer, with a prescription drug benefit (the bigger the better).

Like all leftists, he seems oblivious to the fact that he promotes many policies that have the EFFECT of doing exactly the opposite of what he claims to promote. (Good intentions count to leftists. Bad results don't.)

P.S. Truth In Posting comment: Paul...er the economist in question...never seems to actually *defend* Social Security, so much as he attacks any attempts to *change* Social Security. (One would think he was some sort of conservative. ;-))

Posted by: Mark Bahner on June 12, 2003 04:24 PM

M. Bahner:
Do you have any stats on how means testing Social Security would change the nature of the redistribution you speak of?
I basically agree with the point, but wonder how big an issue it is. If a large % of SS recipients are indeed better off than the average SS contributor, it seems a political opportunity would exist.

Posted by: andrewB on June 12, 2003 07:05 PM

Means testing is only another way to deviate ressources from where it matters to the pockets of parasites.
People who argue for means testing should pay for it.

DSW

Posted by: Antoni Jaume on June 13, 2003 07:23 AM

"Do you have any stats on how means testing Social Security would change the nature of the redistribution you speak of?"

No. But it definitely seems like it would help to reduce the problem of taking from the poor, to give to the rich.

"I basically agree with the point, but wonder how big an issue it is. If a large % of SS recipients are indeed better off than the average SS contributor, it seems a political opportunity would exist."

The political opportunity, it seems to me, is for more of the same...better off SS recipients taking from the less-well-off average SS contributor. That's basically what the new prescription drug benefit for Medicare is. Older people are more dedicated voters than younger people. (Plus, who likes to think about denying money--"free" government money, that is--to their parents/grandparents?)

This is why, all around the world, socialistic democracies fail (at least in terms of not being a sustainable model). It's so easily for the majority to vote to take money from the minority. But the minority gets pretty tired of it...and moves their money or their persons to places that treat them better. (And that really ticks off the majority!)

Posted by: Mark Bahner on June 13, 2003 07:48 AM

"1) Social Security, as currently run, involves a massive transfer of wealth from the poorer young to the wealthier old (and from the black to the white, for that matter...notice how THAT is never mentioned by the shrill economist!), and

2) Medicare...even ADDING to the transfer, with a prescription drug benefit (the bigger the better).

Like all leftists, he seems oblivious to the fact that he promotes many policies that have the EFFECT of doing exactly the opposite of what he claims to promote. (Good intentions count to leftists. Bad results don't.)"

Mere rubbish! As usual, only worse....

Posted by: moen on June 13, 2003 11:06 AM

"I basically agree with the point, but wonder how big an issue it is. If a large % of SS recipients are indeed better off than the average SS contributor, it seems a political opportunity would exist."

From the Fed's 1998 Survey of Consumer Finances,
household wealth...

age of head ... median ... average
of family .......... wealth ... wealth

< 35 .... $ 9.0k .. $ 65.9k <-- paying SS
35-44 .. 63.4 .... 196.2
45-54 .. 105.5 .. 362.7

55-64 .. 127.5 .. 530.2 < -- receiving, 62+
65-74 .. 146.5 .. 465.5
75 + ... 125.6 .. 310.2

The greater wealth of recipients compared to payers shown here is understated by the facts that (1) SS benefits themselves represent $300,000 of wealth for the average married couple at retirement age, measured by the cost of a comparable private sector benefit package, (2) the wealth here does not include Medicare and other benefits for seniors, (3) the young are raising children while seniors generally aren't, and have smaller households -- the per capita wealth gap is greater.

SS is a real time transfer from the less wealthy to the more wealthy, on average.

And, of course, over time the average wealth of seniors is pulling up and away from the average wealth of under-35ers.

"Means testing is only another way to deviate ressources from where it matters to the pockets of parasites."

So I guess those payroll taxes taken from Warren Buffett's Dairy Queen employees and paid into his pocket really matter there, and it really would be a terrible deviation to leave that money with the workers, parasites that they are. They haven't made Warren rich enough yet. ;-)

Posted by: Jim Glass on June 13, 2003 11:26 AM

Radical-righties never bother to mention the millions of people like my dad who worked for 45 years and happily paid for Social Security and Medicare benefits for those already retired. Dad knew that others would in turn pay for his benefits, and he knew that he had long been cushioning retirement for others. Dad loved what Social Security and Medicare represented, but radical-righties always know better. Radical-righties have decided to screw the middle class but cutting any possible social services. Thanks, radical-righties.

Posted by: lise on June 14, 2003 11:10 AM

"Social Security, as currently run, involves a massive transfer of wealth from the poorer young to the wealthier old"

I'm not sure "transfer" is the right description for sending money from 20 year olds to 60 year olds, indefinitely. Sure, there's a cost, but as long as today's 20 year olds get benefits at 60.....

Posted by: Jason McCullough on June 14, 2003 01:08 PM

"Social Security, as currently run, involves a massive transfer of wealth from the poorer young to the wealthier old."

Just the way it should work through a 40 to 50 year wirk span. Duh.... These compassionate conservatives are an ever so nasty bunch.

Posted by: dahl on June 14, 2003 01:24 PM

"Radical-righties never bother to mention the millions of people like my dad who worked for 45 years and happily paid for Social Security and Medicare benefits for those already retired. Dad knew that others would in turn pay for his benefits..."

Radical lefties never bother to mention that today's young are goung to get *less* from SS than they put in, while dad was happy because he knew he was going to get back a lot more. What dad wouldn't be happy with that?

But how happy would all those dads have been if they knew all along that they were going to be the ones getting back LESS than they put in through their 12.4% tax, to make sure that those richer and older than themeselves get would back MORE than they put in (through taxes starting at 3%). Is that a formula for happiness?? And that's the situation of the young dad's of today.

It's amusing to watch radical lefties howl about how unjust it is that "the rich" should get a 2 point tax cut that lets them keep a little bit more of their own money -- while at the same time proclaiming the high principle that we should be making transfers *to* the rich, no billionaires excluded (!), from the poor, as a matter of social justice. ;-)

Posted by: Jim Glass on June 15, 2003 07:01 AM

"I'm not sure "transfer" is the right description for sending money from 20 year olds to 60 year olds, indefinitely. Sure, there's a cost, but as long as today's 20 year olds get benefits at 60....."

Let's put aside for the moment the fact that SS promises *not* to give back to today's young anything near what it gives to today's old relative to what they put in. Let's instead assume it will return $3 for every $2 contributed, to everybody.

Here's a little thought experiment. The average person today is much better off financially at 60+ than <30. Wages increase throughout life, savings accumulate, the mortgage gets paid off, life insurance gets paid off to become a cash asset, investments appreciate, etc. And young people have all the costs of raising kids that they no longer have when older.

OK. So say SS taxes $2 out of your wages when you are young and poor and returns $3 to you when you are old and rich. Is that progressive or regressive within your own life?

Note how financial demographics have changed in 70 years. When SS was created the old were the poorest demographic group, having spent their lives in the time before corporate pensions, IRAs, 401(k)s, mutual funds, even home mortgages as we know them. In that time when seniors were the poorest class, it made sense for workers to pay a little tax (3% in FDR's day) to give them a transfer benefit.

But today's seniors are the *richest* age group and are growing ever richer compared to young workers every year.

Isn't it rather conservative of liberals to say the SS should never change in spite of all the changes in the world -- except that taxes should go up and up to keep it as it is?

Posted by: Jim Glass on June 15, 2003 07:33 AM

Funny how Americans so often twist a discussion on foreign countries back into American terms - Social Security, Medicare, Paul Krugman and 401(k)s.

Did anyone see that article in the Economist applying Brown's five tests to Germany? Good idea, that, I thought. Some German economist was recently quoted as giving a 25% chance that the Euro would collapse over the medium term.

Posted by: PJ on June 15, 2003 01:51 PM

Jim, I don't find the idea of changing SS bad personally. I am not fond of the disinformation campaign claiming that it is going to be free and disclaiming SS's debts.

Posted by: Stan on June 16, 2003 05:35 AM

"Radical-righties never bother to mention the millions of people like my dad who worked for 45 years and happily paid for Social Security and Medicare benefits for those already retired."

Economics 101 for lefties: A Ponzi scheme is ALWAYS good for the people who get in early in the pyramid. That's precisely why is takes off...word of mouth of the great returns on "investment." It's only the later generations of "investors" who get scr...er, a bad deal. (That's why private Ponzi schemes collapse.)

Posted by: Mark Bahner on June 16, 2003 09:59 AM

"Funny how Americans so often twist a discussion on foreign countries back into American terms - Social Security, Medicare, Paul Krugman and 401(k)s.

Did anyone see that article in the Economist applying Brown's five tests to Germany? Good idea, that, I thought. Some German economist was recently quoted as giving a 25% chance that the Euro would collapse over the medium term."

More looney rightness. Duh...

Posted by: arthur on June 16, 2003 10:14 AM

Jim, I think you're confusing the short-run in SS - namely, that the first generation got an insanely good deal, as after all, they didn't have to pay much - with the long-run. In the long-run, everyone will get back about the same amount they put in, and SS's true nature as a risk-pooling program comes to the forefront.

I don't think people like SS because they expect it to make them rich in their later years; they at some level know no matter what else happens, as long as they put in a full life's work, they'll have a respectable retirement, and won't be reduced to working in fucking mcdonalds or something.

Posted by: Jason McCullough on June 16, 2003 01:36 PM

These righties never confuse things, they are merely out to destroy the New Deal and Great Society at all costs. They despise the Social Security Program. Of course, they really despise the middle class.

Posted by: arthur on June 19, 2003 09:07 AM

"re: economics 101 for lefties: A Ponzi scheme is ALWAYS good for the people who get in early in the pyramid."

This statement is a slander.
Of course the first batch of retireers "did well" They were the first generation under the program. So they contributed for the shortest amount of time before retirement. But your argument has the moral force of blaming a baby for the sins of the mother. By definition, to get the system going, someone has to go first. Its the cost of setting up the system and it was paid for a long time ago

SS is an inter generational transfer, so unless someone is planning to eliminate all future generations, there can be no collapse. A Ponzi scheme collapses because it requires an EVER EXPANDING group of new entrants. SS simply needs NEW ENTRANTS and as long as the human sex drive lasts, well you get the picture.
What SS does require is adjustments up and down of payroll taxes depending on the size of the retirement generation versus the working generation. Right now the retirees are set to grow, so we have to increase contributions to maintain benefits at current levels.

Big friggen deal.

The Bush Tax Cut however is a Ponzi Scheme. Think about it. It uses borrowed money to give a nice juicy tax reduction today. But in order to maintain this tax cut for future tax payers the Governemnt will have to borrow year over year. (and no, you wont grow your way out of it, it didn't work for Regan why would it work now humm)Eventually the debt load will become unsustainable and the government will be forced to raise taxes. So the early entrants get all the benefits and the future entrants get to pay the costs.
Thanks for clearing that up!
BUSH's CUTS ARE A PONZI SCHEME

Posted by: Scott McArthur on June 19, 2003 01:50 PM

"re: economics 101 for lefties: A Ponzi scheme is ALWAYS good for the people who get in early in the pyramid."

- This statement is a slander. -

Scott

Just what needed to be said!

Posted by: jd on June 20, 2003 10:32 AM

The object of these alley cats is to get rid of the New Deal. That it has built middle class America is of no concern.

Posted by: jd on June 20, 2003 10:34 AM
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