Re: Keynes on "sinking funds," SS, and Economic Policy Inst. and

[Clifford Poirot <cpoirot@xxxxxxxxxxx>]

I have a rather naive question (perhaps reflecting the relative inattention
SS reform has occupied for me). Ohio's retirement system, STRS (quite
similar to Calpers), exempts all public employees from the social security
system. We pay the equivalent either into STRS or TIAA-CREF (or some similar
entity). If you are in STRS, you can retire at the end of 30 years with 70%
of your three highest year's average salary, and in addition, receive a
health benefit. In other words, for the equivalent of paying into SS, you
receive a benefit much better than SS.

If this system can work for Ohio and California, why would it not be good
for the country as a whole?

-----Original Message-----
From: Niggle, Christopher [mailto:Christopher_Niggle@xxxxxxxxxxxx]
Sent: Friday, September 07, 2001 1:04 PM
To: 'Paul Davidson '; Niggle, Christopher
Cc: 'pkt@xxxxxxxxxxxxxxxx '
Subject: Re: Keynes on "sinking funds," SS, and Economic Policy Inst.
and


 Paul:  I agree with you.  The SS assumptions are overly pessimistic:
deficits are unlikely.  IF deficits were to occur, they could be easily
offset with small tax increases OR by broadening the SS tax base.  IF the
pessimistic assumptions regarding productivity and GDP growth obtain, the
burden on future workers would still be less than the current burden,
however, and much less than the effective burden on past workers.  I don't
agree with the argument that lock boxes make sense, but I understand it as a
political tactic in a wierd world in which democratic politicos support
balanced budgets and Republicans are more willing to run deficits.

Chris
-----Original Message-----
From: Paul Davidson
To: Niggle, Christopher
Cc: pkt@xxxxxxxxxxxxxxxx
Sent: 9/6/01 7:55 PM
Subject: Re: Keynes on "sinking funds" and Economic Policy Inst. and AFL-CIO
economists

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
<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
523 SMC
Knoxville, Tennessee 37996-0550
work phone: (865) 974-4221
fax: (865) 974-4601/  (865) 974-1686
home phone and fax (865) 692-0802