Fwd: Re: Keynes on "sinking funds" and Economic Policy Inst. and AFL-CIO economists

[Paul Davidson <pdavidson@xxxxxxx>]

Date: Thu, 06 Sep 2001 21:55:42 -0500
To: "Niggle, Christopher" <Christopher_Niggle@xxxxxxxxxxxx>
From: Paul Davidson <pdavidson@xxxxxxx>
Subject: Re: Keynes on "sinking funds" and Economic Policy Inst. and AFL-CIO economists
Cc: pktnet

At 01:13 PM 9/6/01 -0700, you wrote:

Yeah, Jim; I agree with you.  It makes NO sense to prefund a public pension
fund by more than the equivalent of a year's expenditure or so, and even
that isn't necessary in a strict sense, only politically helpful to make it
more difficult for politicians to cut benefit levels in recession years when
a deficit might occur.

Come on Chris -- what difference will it make if the government must cash in the government bonds held by the social security trust fund in order for politicians not "to cut benefits" in recession years when payroll taxes are falling off?



Even worse, however, is the foolish economic nonsense from economists on both sides of this issue of privatization.

If, as the oft cited projections suggest, there will only be 2 workers for each 3 retired person (or some similar nonsense figure)-- and given the projected growth of GDP that underlies projected future payroll tax revenues, the social security fund starts paying out more than it takes in by 2017 and goes broke(?) by 2032, -- then what difference does it make to the burden on the working population anyway?

Assuming that the economic projections of  GDP growth is independent of whether there is privatization or not, the Projected GDP will be the same in each year from 2001 to 2035. Therefore if privatization provides a bigger return than the social security, then the retired folks will TAKE A BIGGER BITE OUT OF THE PROJECTED GDP IN THE FUTURE -- meaning there must be less for the working population -- therefore putting a bigger burden in terms of lower real income (consumption or utiles of happiness) on the poor working slobs of the 2020s and 2030s when the baby boomers retire. 

In other words, the George W. plan for privatization places a larger burden on the working folks -- as they will have to either (1) work harder to produce enough additional output to provide for the richer retired baby boomers (if you believe George W. that they will actually earn a higher return than with a non privatized social security) and still maintain the standard of living that George W's economist project will be their burdened  stamdard of living under a social security system that continues as it is today, or (2) have a lower standard of living thasn they would be projected to have if the social security system remains unchanged.!!

Yet I do not see any left of center economists telling the public and the media this -- Instead they seem to support the "stupid" lock box (i.e., sinking fund) of Al Gore and the New Democrats -- who if they keep this up will be are moving to the right of Attila the Hun by 2020.

I can understand the political advantage -- given the 8 second sound bite attention of the media -- to the Democrats in playing on George W.s using the "social security surplus" to buy (job creating) things-- but  Excuse me-- where are the economists who are willing to explain the truth to the media -- for economic advantage -- and not political advantage??

-----Original Message-----

From: Jim Devine [mailto:jdevine@xxxxxxxxxxxxxxx]

In a recent NY TIMES column (August 26, 2001), Paul Krugman likened the
Gorish "lock box" for US Social Security system to a "sinking fund." If I
remember correctly, he favored such a fund because it would raise
confidence in the SS system. (I can't afford to pay for a copy of his
opinion.)

The lock box was, in my view, just a political ploy all along -- but somehow it took on a life of its own -- especially after Florida!! It was a way to get even for butterfly ballots and Patricia Harris.

According to MSN's financial glossary, a sinking fund is "A special reserve
account created by a bond issuer. The issuer promises to put money into the
account at regular intervals and to use the cash that accumulates to redeem
the bonds. A sinking fund gives bondholders an extra layer of protection
against default." I guess if you see SS recipients as bond-holders, PK's
analogy makes sense.

By PK I hope you mean Paul Krugman and not Post Keynesian

But does it make sense for SS to have a sinking fund (lock box)? It's
interesting to see what the founder of PK's putative school of economics
says.

Hey Jim, JMK has nothing to do with your PK. Your PK wouldn't know a  principle of Keynes if he fell over one.  His oft-quoted solution for the Japanese decade long depression -- that the Japanese ought to print more money -- may sound like Keynes's satirical suggestion of filling old mine shafts with five pound notes -- but PKs  theoretical justification for this involves the assumption of neutral money and the quantity theory of money!! So please, Jim, do not associate Krugman with Post Keyensians!!

Paul

Paul Davidson

Editor, JOURNAL OF POST KEYNESIAN ECONOMICS

Economics Department - University of Tennessee

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