They both wanted to exchange bodies, exchange faces. There was in both of them the dark strain of wanting to become the other, to deny what they were, to transcend their actual selves

October 21, 2013 § Leave a comment

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Because people hate to think they are receiving welfare handouts, we’ve all decided to pretend that Social Security is some kind of savings program. That way it can really be about you paying in and getting out. Hooray personal responsibility and individualism! But in reality, Social Security is really just a straightforward welfare handout. You tax the currently-working and then take the revenue and give it to the currently-old. It is a transfer program or, if you’d like, a “redistribution” program.

This aspect of old-age security programs is completely unavoidable. As I wrote earlier this year, if you can get currency out of your head for a moment, you should be able to see that — in real resource and real production terms — all retired people live off the production of the currently-working. This is vacuously and stupidly true. Retired people don’t produce anything. So where is the stuff they are consuming coming from? That’s right: the currently-working.

In non-money terms, our ability to support retired people is a function of how much stuff the currently-working are producing. It has nothing to do with how much money is in the Social Security Trust Fund. It has nothing to do with how much payroll tax the people who are moving into retirement paid over the last few decades. That’s all meaningless outside of the world of accounting.

For instance, suppose we had jacked payroll taxes 30 years ago such that the Social Security Trust Fund was much bigger at the present moment than it actually is. Would that change anything outside of the accounting world? No. Recall once again: the iron rule here is that the currently-retired are necessarily living solely off the production of the currently-working. Piling up a bunch of cash and then disgorging doesn’t change the mechanics of what is going on. The currently-retired would still be snatching up the exact same fraction of the currently-working’s production for their consumption. The real outcome would be exactly the same in this more “fiscally responsible” scenario.  read more

PHOTOGRAPH: Margaret Durow

‘She reads at such a pace,’ she complained, ‘and when I asked her where she had learnt to read so quickly, she replied “On the screens at Cinemas.”’

May 15, 2013 § Leave a comment

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This morning I saw a very nice quiz concocted by a financial markets guy. I don’t want to get him in trouble so will borrow heavily from him but without attribution. If you can get this right, then you know why Quantitative Easing One, Two, and Three is a big bunch of baloney.

Consider the following thought experiment. These are the scenarios; what is the expected result of each?

A. The Treasury decides that it will fund itself 30% more in Overnight Bills and reduce bond issuance across the curve.

B. The Fed announces it will increase QE by 30% (it will remit the net income of this activity back to the Treasury).

C. Congress announces a new tax on all passive income from USTreasuries, to holders both at home and abroad (ie Central Banks), for all new-issue USTreasuries. The tax will be equal to 30% of the return in excess of the fed funds rate.

D. Treas Secty Lew pre-announces that we will ‘selectively default’ and apply a haircut of 30% on all future Treasury coupon payments of new issues in excess of fed funds rate.

What will be the likely effects of each policy? Don’t peek!

OK here is what the markets guy (rightly) says:

Here’s what’s funny. Most intelligent market participants will say things like:

A. Stocks down a few percent on fear of US debt downgrade. Economy slightly weaker or unchanged.

B. Stocks up 5-10% and economy grows another 1% for 1-2 yrs; monetary stimulus.

C. Stocks down 5-10% on tax hike (like last year) that maybe corrects. Economy slows 1-2% for a year or so because it’s a tax hike (ie fiscal consolidation).

D. Stocks down 80% and we go into a great depression on steroids. All investment dollars flee the US. I can’t tell you what happens next because my Bloomberg account gets shut down. They might even declare an Internet Holiday.

Here’s what’s craziest: THESE ARE ALL THE SAME THING. The name and the processes are different, the OPTICS are different, but the net is the same. There’s the government and there’s everyone else. The government either pays more out – in interest payments or transfer payments or vendor payments, or it takes back more in taxes or default or interest ‘savings.’ Everything the government net gets in ‘revenue’ the rest of the world loses in income. Everything the government dissaves (deficits) the rest of the world saves. Equal and opposite.  read more

COPY: Matt Bloom

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