You are confusing programs. SSI is essentially a poverty program that has no trust fund. It is means tested and comes accompanied by Medicaid. Social Security Retirement and Disability programs do have trust funds and entitle the recipient to Medicare.
I know it is popular to consider the SS trust funds to be a fiction, but that rationale only applies if you also consider other gov't securities held by private parties, pension programs and trust funds to be fictions. It's all debt owed by the gov't.
While I agree with the bigger point of this article, i.e., that the government is not an endless source of free money, I have to take exception to your examples.
Minimum Wage: You imply that this is going to be paid for by the government. Unless I am missing something, that is incorrect. It is, of course, paid by the employers. (Just to assume for a moment that no one lost his or her job if the minimum wage were increased, it would likely have the effect of reducing the number of people on government programs.) If you want to argue that raising the minimum wage would hurt the economy (implication: more people lose jobs>more people eligible for gov't programs) or make a political/philosophical argument that it is not the government's role to meddle in wages, I think those discussions are important but not germane to your point here.
Social Security for spouses: So my first question is: Do you think it is beneficial to children (and ultimately to society) that one spouse stay home with the children while they are being raised? This is the point of the social security benefit of which you complain. If a spouse stays home to raise the children, she (it could just as well be Dad but I will use "she) will lose a good portion of her working years and when/if she enters or reenters the workforce, she will likely never catch up. This was especially true in your Aunt's pre-Internet days. The benefit is small: only 50% of the former spouse's benefit and only that if it is greater than the benefits she earned by her own work. It is unfortunate that people get divorced but as long as we are forced to contribute to social security, this arrangement makes sense. The way it is structured, the most likely recipient is a former stay-at-home spouse who was in a long marriage. (That some marriages do not produce children, etc. has no bearing on this point as my only point is that this is why this particular benefit exists.)
As to the bigger picture, i.e., educating the populace that the government cannot forever be an endless source of money, after all money is not created out of thin air (oh wait!) - I think we should start with the TBTF banks, the military expenditures (which is actually the economic engine running this country), and the daily extraction of money that crony capitalism engenders. Why point a finger at the little guy or gal when his or her share of government (funny) money is merely a drop in the bucket?
I'm a financial planner, and there are so many Social Security "planning" options in the case of married (or divorced) couples, it's astounding. My grandmother was divorced from my grandfather. After her husband (my stepgrandfather) and my grandfather had both passed away, she had the option of claiming survivors benefits on the higher their benefit amounts. Prior to that, she was claiming a 50% spousal benefit based on my stepgrandfather's earning record.
We also have a client who is getting survivors benefits based on her deceased husband's benefit amount. Nevermind the fact that we manage about $9 million for her. And she has probably another $3-5 million in "nonfinancial" assets.
Ultimately, the spousal benefits and survivor benefits were put in place when typically only one spouse worked. It was a way to compensate the non-working spouse for staying at home and raising a family and taking care of the household. While this made sense, these planning options are likely going to be the next thing that gets targeted during SS reforms (after chained CPI, pushing back the full retirement age, etc). As Adam noted, this type of benefits won't be sustainable.
I was wrong to call it SSI, my mistake, my comments refer to Social Security Retirement & Disability program.
Actually the lions share goes to non-military items. Social Security, Medicare, Medicaid are more than double the defense budget. If you add in many of the mandatory/discretionary items you probably have 3x the defense budget going to "social" programs. This graphic from 2011 illustrates this the best. The 2013 numbers are similar.
Also, you have to realize that that defense budget keeps more than a million people employed. So while I agree we need less spending on defense (and everything else), that defense budget is not going strictly to a few people, its more like it goes to a lot of people with those at the top skimming from it.
Just trying to show how skewed it is right now. I'll throw in the INCOMES of Hedge Fund Managers soon, as well as medical doctors and educational Presidents. I do not pretend to provide answers as I personally think the system is beyond fixing, maybe a class warfare? But then there are two sociology/political science principles:
- The Circulation of the Elites (always happens after revolutions), and 2) The Iron Law of Oligarchy (pyramidal structures always manifested themselves, at all times).
So, I'm off to warm Costa Rica where I eat rice, beans and corn–really good stuff–VERY resilient, no? And mingle with the poor locals, the salt of the earth!
I just thank GOD (Quantum Consciousness, my definition) everyday that I'm not in the LOWER class–poor karma???
Really LOVE these conversations. Many thanks to Chris, Adam and ALL you folks.
You have some critical errors in your thinking here. First, that $1342 Billion is net worth, not income, so yeah you can tax it at 25% and then in 4 years what are you going to do when it's gone? But the more important question than that, who's going to buy those assets so you can make use of it? The vast majority of that wealth is going to be stocks & bonds, who's going to purchase it - the little old lady your trying to help? How are you going to turn that paper wealth into something real?
As far as having more breakouts above $100K, would be nice but it doesn't matter. While it's annoying to see much of the "wealth" flowing to the top right now, much of it is simply paper wealth (again high value of stocks) that doesn't represent real wealth. Also, it doesn't really matter. The problems is that in the US nearly all citizens are living far beyond their means - supported by the reserve currency of the world, deficit spending at all layers of government, and personal deficit spending using credit.
If you take the conservative number (some estimates are double) that we have $100T in debt and unfunded liabilities you quickly find that no amount of taxing or wealth confiscation will make a bit of difference. To put it in perspective, the total value of US assets is estimated to be $188T, but only $46T of those are tangible assets. If you took all those "real" assets and distributed them evenly among the 112M households, that still only a net worth of $410K/household. How is that 100-200T ever going to be paid, that's 2-4x that $410K/household value?
Want another way to look at it, if you want even wealth distribution, if you have more than $410K in household assets (house, savings, pensions, personal belongings, share of national parks, forests, roads, etc of everyone in your house) of more than $410K, then you need to be ready to give up anything above that in the name of fairness. I'm guessing quite a few on this forum wouldn't find that very appealing.
EDIT: Chris said this much more eloquently.
… with your acknowledgement that our money is, for the most part, FAKE.
This view meshes well with that expressed by E.F. Schumacher and expanded upon by The Archdruid, JMG.
Schumacher wrote that there are two types of wealth. Primary wealth is the first, which is made up by the services provided by the earth's ecosystems and the raw materials that the earth provides. Secondary wealth is made up of all of the products and services that are created through human manipulation of primary wealth. Without primary wealth, there can be no secondary wealth.
Greer expanded (updated?) this definition to include tertiary wealth – financial instruments that are ultimately founded on primary and secondary wealth.
We now live in a time where primary wealth is completely discounted/misunderstood, secondary wealth is following the same path, and tertiary wealth has been elevated to replace the first two – and in the process has become increasingly disconnected from the first two. It is this fundamental disconnect that drives our slavish devotion to perpetual exponential growth extracted from a world that is increasingly coming apart at the seams.
The top 0.001% knows this. It's why you have hedge fund managers buying up farmland while simultaneously taking advantage of the Fed's free money program. Personally, from an expediency standpoint, this is why I can't really blame those on the lower end who are trying to get what they can from the system – because it's not that the system is going to fall apart, it already is falling apart. I'm sure as hell not going to refuse to take advantage of state and federal rebates for alt. energy when I build out my PV system in the next couple of years, just because the monetary system is falling apart, just as I'm not going to refuse to have a backhoe help build my backyard pond or use a chainsaw to process firewood because peak oil is upon us.
I'm not going to judge those on the lower end of the econometric scale who try to game the system to their own advantage, even if it contributes to the decline, because the decline is occurring regardless of what they do. That die was cast long before today…
Examined -Let me clarify, as I think you've made some assumptions about my intent that aren't accurate.
- My question on the 40% increase in minimum wage was: How will it be afforded? Yes, the employers will pay the increase, but can they do so at acceptable cost? And by 'acceptable cost', I include factors like:
will prices need to rise, thus exacerbating the already-painful price increases in essentials (food, energy, housing, health care, etc) that so disproportionately inflict injury on the poor and middle classes?
will workforces shrink as employers can afford to hire fewer workers?
will work benefits shrink as costs/employee rise?
In your comment you mention "Just to assume for a moment that no one lost his or her job if the minimum wage were increased". Sorry, but I just don't see any probability above 0% for that outcome. It strikes me as the same sort of reality-detached magical thinking that's at the heart of the point I'm trying to make within this article. If your assumption were possible, then why stop at a 40% minimum wage increase? Why not make the minimum wage $1 million and eradicate poverty altogether? Because as we all know, you can't produce real wealth with more paper. Paper can only distribute wealth (or more accurately, claims on wealth), and even then, it has consequences that need to be taken into account.
And lastly, in the case of the President's executive action to increase the minimum wage paid to federal contractors, the government may indeed end up being the root source of funding for this increase. It's highly likely these contractors will charge the government more for their services in the future, because their labor costs just jumped so severely. And where will the government get the money to pay these higher bills? From the taxpayers (or more likely, as Charles notes, it will fund the cost increases with debt borrowed on the taxpayer's backs) - I may be misreading you here, but you seem to imply that I have a philosophical issue with spousal benefits as a part of SS. I don't.
The issue I have is that the system is acting in a mathematically irresponsible fashion.
In the example I cite, the ex-husband's SS payments were calculated based on his income over the years he worked. By its rules, the system determined he paid in enough wages to merit a SS retirement income stream of $X.
Does his ex-wife have a claim on that? Maybe, maybe not. That's not my point. But if it's determined that she does, which the government indeed thinks, then I would expect her to receive a payment of $Y and the ex-husband's payment to shrink to ($X-$Y). That would keep the system solvent, in theory.
But that's not the case. Instead, it's an ($X + $Y) situation. His payments stay the same, and she also gets a check.
By writing the above post, I wanted to highlight the broken math behind the system. But more importantly, I wanted to expose its consequence-free thinking. It's the free money mindset that's the root evil here – which pervades ALL government spending and borrowing (on both the politician and populace sides). - You (and several other commenters) appear to have interpreted my position as attacking the SS check recipient. Let me be clear: that's not my intent at all. As described above, I'm instead criticizing the system and the mindset driving it.
My article above was based on a personal vignette; it was not suggesting the vignette was the entire scope of the problem.
And I thought I gave a sufficient nod to the equal insanity of throwing fresh money & debt at the markets, banks, etc. But in case it wasn't enough: heck yes! we should be running our national fiscal books in ALL cases within our means (and fairly, too, while I'm making wishes here). I'll loudly applaud and actively participate in any discussions that delve into reforms for Wall Street, the military-industrial complex, corporate subsidies, etc.
Sadly, IMO, even under the best of circumstances should saner thinking suddenly break out across the country, before we can live within our means, we will need to live beneath them for a painfully long time in order to make up for the over-excesses we've been enjoying.
Adam,
One question I have that nobody seems to be able to answer is this? Is it possible to balance a budget permanently in a financial system that is paper based, backed by debt? I don't think so. Many people simply suggest cutting expenses and the problems will be solved. But doesn't a paper money system need to continually expand to avoid serious recession or depression? Along with the resulting lack of trust in such system?
My contention is that most of the corruption we see is a result of the easily predicted death throes of a paper based money system. Making moral judgments in a system lacking morality may be wasted time and thought.
Adam
I've seen some of this from the inside also. Davis-Bacon is a nightmare of complexity and confusing standards. I certainly understand the frustration of contractors trying to comply with the regulations. But, having overseen compliance with those regulations for a segment of gov't contractors, I can say that I don't know of one contractor who went out of business or significantly reduced their workforce.
Second, again in that segment of contractors, they bid for the jobs. They can't just willy-nilly jack up prices. Most of those contracts were for construction or maintenance of gov't structures. These kinds of contracts tend to have fairly fixed costs and require certain numbers of employees.
Another observation. I was doing this work back when Reagan was supposedly privatizing all kinds of gov't programs. The myth is that somehow all that work was suddenly shifted to the private sector and were, ipso facto, less expensive. On the contrary, it turned into a gravy train for contractors at the cost of huge increases in taxpayer dollars.
I would love to see a full accounting of all those formerly gov't functions that were outsourced but are still paid for by the taxpayer. Particularly, I would like to see how much more we pay for all those military and "security" functions that the military and spook agencies formerly performed, but are now performed by the Blackwaters of the world.
So, in summary, we are paying more for a lot of those services at least partially because they are now performed by the private sector and when one contractor raises his prices, they all do; and those services are largely necessary for the rest of the private sector to perform their functions. The contracting system is fairly transparent among the contractors and they know how to play the game.
does anyone out there know where the break even point is? where does it make sense to give up being middle class and settle for free entitlements. ? just wondering. Strategy change?
the system is the system and we are all free to play the system any way we each choose.if i decide to play by the systems rules, that is my choice. i have no reason to be upset if everyone doesn’t see my wisdom!! or folly. your choice is your choice . no matter what i think.
i see the system changing right in front of our eyes. and i am hearing a lot of comments that are bemoaning how unfair it is to change the system
.the reality is — it’s changing. and we can chirp away or start adapting.
Arthur says : I will stick to my guns. What we are watching is the destruction of the very idea of money.
i agree but i would change that to say i see a desperate attempt for folks to say the money is real , the system is wrong. People are desperately trying to hang on to the idea of money…to their own detriment.
the money is worthless so who cares about all the numbers and charts. Or the idea of money having real value… we are just waiting for a disclosure event to shed light on this fact.
i was taught to work hard at something i loved doing, save 10% every year for when i was old.
a few years back i realize that that was no longer going to be a good strategy and i had been duped into giving my years of work for a sheet of paper with numbers on it. so in 2006 i started transferring my “paper wealth” into owning my own hard assets: land, shovels, fences etc.
i live in michigan. we have lots of snow and it’s been extremely cold in the negative numbers. it’s currently 16 degree and as soon as i send this, i am taking a book out to my greenhouse , where it is 85 degrees, and i will sit down and enjoy reading for awhile. i bought and built my greenhouse with some of my worthless paper money before everyone has realized it’s worthless.
last month my heating bill was $15 for the whole month, because i worked hard and chopped and stacked enough wood to heat my well insulated house.
the numbers i care about are how many cords of firewood do i need for a cold winter like this. and how long does it take me to split it all. i stay one or two years ahead on my wood. better than paper!!
a little hard work is actually good for this 60 yr old woman.
The data agrees with rhare:US Defense Spending: FDEFX / FGEXPND
US Social Spending: social security (W823RC1) + medicaid (W729RC1) + medicare (W824RC1) + unemployment (W825RC1) + "all other benefits" (W827RC1) / FGEXPND
I'm not trying to argue that military dollars are well (or even necessarily) spent. He's just right on the numbers.
But I certainly wouldn't use the argument that "the military employs a million people." I'd much rather NOT tax people, let them use their own money, and NOT hire the million people in defense, and assume the private sector could find a better use for the money. Strictly from the standpoint of a jobs program, dividing 1 million workers by the 777B spent by the miliary, we get a cost of $777k per worker.
Expensive jobs program. Even for the government.
I guess I stated that kind of poorly. What I was trying to point out was that when you look at the Military budget and say people are getting rich off it, it's misleading. Only a very small percentage of that $777B is being siphoned off to make people wealthy. A lot of it is going to a lot of people's salaries and equipment that does have a "useful" purpose. It's the "slash the military budget" and everything will be better that I think ignores other impacts, for example, what happens when millions are suddenly unemployed and have unusable skill sets. For a while the problem will probably be much worse. Don't get me wrong, I think it needs to be cut considerably (move to defense versus empire building).
I also was way off on the number of people being supported by the military budget. I was just counting the defense contracts (can't find the link to the number now, but it was in the million range), and left off the 2 million active and reserve troops that the budget also pays for. So the cost/jobs is actually much less than the $777k/worker. A few billion dollar planes and other equipment takes up a lot of that amount so it's not all salaries anyway.
The key takeaway is that the "Slash the military" and "Tax the rich" are not realistic approaches to our current issues. They make good sound bites but do nothing as far as addressing the magnitude of our problems. As Adam, Chris and others have pointed out, we have a very bad spending problem. We are living well beyond our means and have for years. Until that is accepted, which means giving up on the naive sound bites, we will not be working towards a solution. Then on top of that so much of the wealth we perceive is an illusion based on a faulty monetary system. If the money is not real, then the wealth is not either.
Nice clear graph Dave.
I interpret it thus:
Drones, no matter how repulsed you are by them, are a cost effective method of stirring up a hornets nest. They are an example of the Machine increasing "productivity" and decreasing costs while eliminating humans. (On both sides). Who would dream of sending in serried ranks of grunts in this day and age? Far too expensive! Consider the medical bills alone.
And we haven't even begun to discuss the cost/benefit ratio of autonomous robots. Obviously large aircraft carriers just aren't in the cost/benefit ballpark.
I have to concede that there are still cheap humans to be bought. Classic evolution should come into conflict with designer humans over that issue.
My hope is that the illusion of money pops soon and we wake from its nightmare. Our culture must be go the way of the Bushido. In support of my view I regurgitate I, Pet Goat II.
[quote=ferralhen]does anyone out there know where the break even point is? where does it make sense to give up being middle class and settle for free entitlements?[/quote]I have a friend who is on disability, but dreams of the day she might be off of it again.
While the amount she is living on is tiny, once the various health insurance benefits are factored in that come along with a tiny income, we calculated that she'd have to earn $42,500 on a pre-tax basis to break even.
In a county where the median income is a fraction of that, that's a tall order.
Forget cutting military spending etc. What if we just all at once ban petroleum powered farm equipment. Think of all the jobs that would open up. (Clearly I'm being sarcastic, but I think there is an some twisted wisdom in the idea).
Tallestmanonearth,
What you suggest may not be all that farfetched. Modern agriculture uses massive amounts of petroleum and credit, both of which could become a limiting factor very quickly. The Amish purposely limit technology in an attempt to keep many people of their community actively farming. Unfortunately, in our society, your standing is inversely proportional to how dirty your hands become while earning a living. As well as your financial compensation.
From our prior list of top ten Billionaires: Charles Koch, 36 Billion; and, David Koch, also 36 BILLION. Let's see what they are up to now–could this possibly be true? Surely Rachel is biased, no? WEALTH MATTERS and can keep the Plutocratic Elites in control. Focusing ONLY on income is quite deceptive, no? Do these brothers consider sustainability, limits to growth, etc., important?? That's why I claim that we need Income-Wealth Social Class Charts–wake up America.
I have been following with interest the comments and thinking on this article. Where does the money come from is a really good question, and one that most people do not truly understand, from the perspective of how governments operate. My work has me connected to the provincial government budgetary process, and I can tell you that there are many senior executives with spending power who do not know how budgets actually work.
The key that most people in general do not understand is that a Budget is actually legislated and passed into being, making it a law. This is the validation process, which is done by the different but similar legislative processes in various countries. To spend more than is legislated in a budget is to literally break the law…
What has amazed me is that Obama has never brought in a budget (at least that is my understanding from the outside looking in). So the reality is that in not doing so, he has been able to make these grand gestures, such as what he just did in raising the minimum wage for federal contractors, without fear of actually breaking the law. Had he brought down budgets each year, he would not have been able to do this (and many other things) legally speaking. So I have to ask has he been a sneaky SOB in purposefully not bringing down a budget knowing that he could do what he wanted and not be technically breaking the law?
Should the first order of business then not be creating new legislation to make it mandatory to table an annual budget? It should be illegal for a President to just spend, spend, spend without legislative accountability. Maybe I am out to lunch and really do not understand the American political system, but to me, the basic first step is table a budget, and if you don't stick to it then the people will call you on it.
Thoughts?
Jan