I would have you understand that I am all for recycling. Use it up, wear it out, make it do or do without--it was sound advice during World War II, and it still is today. Still, despite my committment to sustainable blogging, I was not pleased to see the Center on Budget and Policy Priorities reissue the graph I blogged about last year in virtually the same form.
I didn't think much of this graph at the time, and I still don't. The effect of the graph is to make it seem as if we could, by simply refusing to extend the Bush tax cuts on high earners, cover virtually all of the Social Security shortfall that is going to be putting immense pressure on the budget deficit over the next century. But this is not the case.
The CBPP gets its figure by taking present values of the Bush upper income tax cuts extended over 75 years, and comparing them to the present value of the Social Security shortfall. For those who haven't taken finance classes, present values are sort of like compound interest, in reverse. Instead of adding up the future gains from interest rates, you discount future cash flows by a discount rate. Why do this? Mostly because of a financial truism: a dollar today is worth more than a dollar tomorrow: it's certain, not risky, and while you can only use a dollar tomorrow, erm, tomorrow, you can use today's dollar either immediately, or at any time in the future.
Present value is a very useful tool for comparing different investment projects. Say you have one investment project that gives you an immediate return, and one that will give you a much higher return eventually, but takes ten years to pay off--a present value calculation lets you assess which project is actually going to be worth more.
But present value has some drawbacks, too. Our contractor was over last night trying to shore up some joists in our basement that were inappropriately cut to run electric wire, and I mentioned to him that I was working on this post. He thought for a minute, and then summed it up perfectly: "It seems to me that you've got two main problems here: liquidity constraint, and an inappropriate discount rate." Just so. Let me see if I can unpack that a little.
Because it discounts future dollars, often quite heavily, cash flows which happen beyond 10-20 years out virtually disappear. In this case, I assume that the CBPP used the same 5.25% discount rate that it used last year. Just to illustrate what the effect of that discount rate is, if you had a guaranteed $100 payment every year for the next 75 years, discounted at 5.25%, the present value of that cash flow would be $1864, versus the $7500 you get from just adding them all together. Over half of that present value comes from the first 14 years of the 75-year period. By twenty years out, that $100 is only worth $35 a year to you.
Now let's assume that someone comes along and offers me a deal: I can buy that guaranteed $100 cash flow, worth $1864, by taking out a loan. That loan has no interest payments for the first 30 years, and then I have to pay back $400 a year from year 30 to year 75. Should I do it?
Present value would say yes! The present value of those future $400 payments is only $1563, much less than the present value of my $100 annual payments that start now. But obviously, I am going to have trouble in year 30 covering my $400 payment with the $100 I am taking in every year.
The difference could be made up in savings; if I could save all my $100 payments at a guaranteed interest rate of 5.25%, then by year 30, the interest on my savings would be $382; using a combination of interest and slow withdrawals, I could pay off the loan and still have $4500 in the bank.
But the government does not borrow and save like normal people--its constraints are different. The closest it can come to saving is to pay off debt. And our debt is not yielding 5.25% right now; our highest-yielding debt is paying 4.375%, which the government is trying to sell more of, not pay off, in order to lengthen the average time-to-maturity of the debt held by the public, which lowers the risks to the Treasury of a sudden interest rate spike.
The average interest rate on debt held by the public is around 3% right now; it hasn't been as high as 3.75% since April 2009.
Now, you might say that this is not an ordinary time, and that when we pay off our debt in the future, we will get a better "return" on our savings. But remember that discount rate: it means that the immediate future is what gives you the most bang for your buck. And we've only got nine years of "savings" before the Social Security shortfall becomes larger than the cost of the Bush tax cuts, as this graph from the invaluable Committee for a Responsible Federal Budget points out:
We're not going to let the Bush tax cuts expire until 2012 at this point, which gives us 2013-9 to save by paying off debt. Let's say that you think that interest rates are going to bounce back to the 4.96 we paid in July of 2007, and we will use all of the money gained from repeal to pay down debt. By my extremely generous estimates (adding in my best estimate of other tax provisions that primarily benefit the rich, and which CBPP claims were not included in the Congressional Budget Office's $700 billion 10-year price tag for the repeal of the high-income tax cuts), by the end of the seven year period we might pay off as much as $600 billion dollars worth of debt. That's not nothing! Which is why we should never have extended the Bush tax cuts for anyone.
But at 5% average interest rates, we'd be saving less than $30 billion a year in interest. Add that to the $80 billion or so the high-income tax cuts will cost us in 2020 and you get $110 billion a year, or about 0.48% of GDP by my calculations. But in 2020, as you can see from the graph, the Social Security shortfall is 0.51% of GDP. By 2025 it hits around 1% of GDP.
Maybe you think interest rates will jump even further? It's certainly possible. But if you think this, then I assume you aren't among the people making fun of the invisible bond vigilantes, or demanding that we borrow more money for stimulus. Assuming that inflation is not going to suddenly zoom to 5% without Ben Bernanke noticing (or reacting), if you think that interest rates are going to hit 7% in 2013, that means you think that the bond market is going to freak out and raise our real interest rates by hundreds of basis points. Given that the average maturity of our debt is currently less than five years, that means we're going to have to roll over a bunch of debt paying less than 3% for a bunch of debt paying more than 7% . . . which to my ears is the same as shrieking "We're screwed!"
Last year I caught a lot of flak for pointing out that most of the heavy lifting was being done by the discounting, and that if you just looked at the cash flows, there wasn't any good way to pay for Social Security over the next 75 years just by repealing the Bush tax cuts for the rich. But you can see this point illustrated in the CBPP's own graph. At right, you'll see their graph from last year. Notice anything different about it from the one above? I mean, other than the fact that they included the cost of all the Bush tax cuts, not just the ones for high earners?
That's right, last year the costs were equal. This year, the Social Security shortfall is almost 15% larger--0.8% of GDP rather than 0.7%. That's the effect of just one year of poor economic growth, and one year closer to the point where the lines cross on that CFRB graph. That alone tells you how much the timing differences in the cash flows are affecting their results, and why this is not a very useful chart.
There's another problem, one which the CFRB points out in its excellent post on the dangers of this comparison. Actually, they too have recycled--they pointed out exactly the same thing last year when the CBPP debuted the graph. Which is that the CBPP's numbers are incredibly sensitive to initial assumptions about the growth rates in these two budget items.
That's not such a problem with Social Security, where the projections are among the most stable we can make. Demographic change is a slow moving disaster. To a first approximation, every single person who will be collecting benefits in 2030 is now living and working in the United States. And the benefits are tied to the taxes that are paid, which means that unless you think we're going to get a giant burst of immigration, the deficit isn't going to widen or narrow overmuch. Furthermore, the benefits are indexed to wages, which means, broadly, to productivity and GDP growth, so there aren't going to be huge upside or downside surprises.
The estimates of the cost of the Bush tax cuts, however, are extraordinarily sensitive to initial assumptions:, as they pointed out last year:
Essentially, CBPP assumes that the growth rates in revenue loss from 2017 through 2020 will continue forever. Over time, the compounding effects of these growth rates are significant -- increasing the value of the cuts to about 1.1 percent of GDP by 2080. Yet tiny changes in some of the numbers they use can drastically alter this number.
For example, they estimate that the tax cuts will cost $99 billion in 2017 and $120 billion in 2020 based off of a combination of Treasury and TPC estimates. We used some TPC tables to estimates these numbers at $102 billion in 2017 and the same $120 billion in 2020. When we tried to roughly apply their methodology using our $102 billion instead of their $99 billion (in other words, a nominal growth rate of about 5.6% instead of 6%) we found that the shortfall only reaches about 0.65 percent of GDP rather than 1.1 percent.
This is not to say that our $102 billion is right and their $99 billion is wrong - both are plausible and surely both will be wrong. The point is that tiny changes in these numbers cause wild swings in the ultimate cash flow results. (Though the magnitude of the present value cost wouldn't swing nearly as much - under the scenario we presented, the present value of the upper-income cuts would be between 0.5 and 0.6 percent of GDP rather than 0.7 percent).
We also tried projecting forward two other ways: assuming that the upper income tax cuts remained a fixed proportion of total revenue under CBO's extended baseline scenario and assuming bracket creep for the upper-income cuts in line with the total bracket creep we estimate in our CRFB baseline.
Here are the results:
The CBPP is entirely right to point out that the Bush tax cuts were extremely costly. Given our parlous fiscal condition, we cannot afford to extend them--we couldn't in 2010, either, but we did it anyway, and that's water under the bridge. Come 2012, they need to expire. But this is what the CBO says our budget looks like if the Bush tax cuts for high earners expire, but the rest of the budget is business-as-usual: "fixing" the AMT and Medicare doctor reimbursement rates, easing the cutbacks made by ObamaCare, and otherwise acting the way we've acted for the last decade:
This is obviously not sustainable. And much of it is simply driven by the growing ratio of retirees to workers, requiring ever-more Social Security and Medicare dollars to sustain them.
That's why I think it's a terrible idea to juxtapose the Bush tax cuts for the wealthy and Social Security in a graph that implies that the costs are roughly the same size. Not just because they're not really equivalent--but because we don't have that money to spend. We're already assuming that we let those tax cuts go in 2012, and the budget picture is still a disaster.
Easing the budget pressure from Social Security is going to require finding new revenue, or new cuts to existing programs--we can't solve the shortfall with revenues we've already spent, any more than you can pay the mortgage with the check you sent to the electric company last week. And those revenues and cuts will have to be large. It is not helpful to imply otherwise. The American public is already unwilling to confront the actual costs of the programs it has. They don't need any more encouragement to push their heads ever deeper into the sand.
A tanker that sank off the Chinese coast was carrying “condensate,” a mix of molecules with radically different properties than crude.
Over the last two weeks, the maritime world has watched with horror as a tragedy has unfolded in the East China Sea. A massive Iranian tanker, the Sanchi, collided with a Chinese freighter carrying grain. Damaged and adrift, the tanker caught on fire, burned for more than a week, and sank. All 32 crew members are presumed dead.
Meanwhile, Chinese authorities and environmental groups have been trying to understandthe environmental threat posed by the million barrels of hydrocarbons that the tanker was carrying. Because the Sanchi was not carrying crude oil, but rather condensate, a liquid by-product of natural gas and some kinds of oil production. According to Alex Hunt, a technical manager at the London-based International Tanker Owners Pollution Federation, which assists with oil spills across the world, there has never been a condensate spill like this.
Advocates are tracking new developments in neonatal research and technology—and transforming one of America's most contentious debates.
The first time Ashley McGuire had a baby, she and her husband had to wait 20 weeks to learn its sex. By her third, they found out at 10 weeks with a blood test. Technology has defined her pregnancies, she told me, from the apps that track weekly development to the ultrasounds that show the growing child. “My generation has grown up under an entirely different world of science and technology than the Roe generation,” she said. “We’re in a culture that is science-obsessed.”
Activists like McGuire believe it makes perfect sense to be pro-science and pro-life. While she opposes abortion on moral grounds, she believes studies of fetal development, improved medical techniques, and other advances anchor the movement’s arguments in scientific fact. “The pro-life message has been, for the last 40-something years, that the fetus … is a life, and it is a human life worthy of all the rights the rest of us have,” she said. “That’s been more of an abstract concept until the last decade or so.” But, she added, “when you’re seeing a baby sucking its thumb at 18 weeks, smiling, clapping,” it becomes “harder to square the idea that that 20-week-old, that unborn baby or fetus, is discardable.”
Corporate goliaths are taking over the U.S. economy. Yet small breweries are thriving. Why?
The monopolies are coming. In almost every economic sector, including television, books, music, groceries, pharmacies, and advertising, a handful of companies control a prodigious share of the market.
The beer industry has been one of the worst offenders. The refreshing simplicity of Blue Moon, the vanilla smoothness of Boddingtons, the classic brightness of a Pilsner Urquell, and the bourbon-barrel stouts of Goose Island—all are owned by two companies: Anheuser-Busch InBev and MillerCoors. As recently as 2012, this duopoly controlled nearly 90 percent of beer production.
This sort of industry consolidation troubles economists. Research has found that the existence of corporate behemoths stamps out innovation and hurts workers. Indeed, between 2002 and 2007, employment at breweries actually declined in the midst of an economic expansion.
The stability of American society depends on conservatives finding a way forward from the Trump dead end.
Election 2016 looked on paper like the most sweeping Republican victory since the Jazz Age. Yet there was a hollowness to the Trump Republicans’ seeming ascendancy over the federal government and in so many of the states. The Republicans of the 1920s had drawn their strength from the country’s most economically and culturally dynamic places. In 1924, Calvin Coolidge won almost 56 percent of the vote in cosmopolitan New York State, 65 percent in mighty industrial Pennsylvania, 75 percent in Michigan, the hub of the new automotive economy.
Not so in 2016. Where technologies were invented and where styles were set, where diseases cured and innovations launched, where songs were composed and patents registered—there the GOP was weakest. Donald Trump won vast swathes of the nation’s landmass. Hillary Clinton won the counties that produced 64 percent of the nation’s wealth. Even in Trump states, Clinton won the knowledge centers, places like the Research Triangle of North Carolina.
Allegations against the comedian are proof that women are angry, temporarily powerful—and very, very dangerous.
Sexual mores in the West have changed so rapidly over the past 100 years that by the time you reach 50, intimate accounts of commonplace sexual events of the young seem like science fiction: You understand the vocabulary and the sentence structure, but all of the events take place in outer space. You’re just too old.
This was my experience reading the account of one young woman’s alleged sexual encounter with Aziz Ansari, published by the website Babe this weekend. The world in which it constituted an episode of sexual assault was so far from my own two experiences of near date rape (which took place, respectively, during the Carter and Reagan administrations, roughly between the kidnapping of the Iran hostages and the start of the Falklands War) that I just couldn’t pick up the tune. But, like the recent New Yorker story “Cat Person”—about a soulless and disappointing hookup between two people who mostly knew each other through texts—the account has proved deeply resonant and meaningful to a great number of young women, who have responded in large numbers on social media, saying that it is frighteningly and infuriatingly similar to crushing experiences of their own. It is therefore worth reading and, in its way, is an important contribution to the present conversation.
Republicans cobbled together the votes for a funding bill ahead of a Friday-night deadline, but it may be doomed in the Senate.
Updated on January 18 at 10:02 p.m. ET
The House on Thursday evening narrowly passed a bill that would keep the federal government open for nearly another month amid an impasse over immigration. But the proposal may be doomed in the Senate, where Democrats and a small contingent of Republicans could block the bill and send the government into a shutdown beginning at midnight Friday.
After an anxious day of arm-twisting and negotiations, Republican leaders were able to persuade enough of their members to go along with a stopgap bill many in the party plainly despised. Rather than fund the government for the rest of the fiscal year, it merely kicks the budget debate forward another month. In a largely futile bid for Democratic support, the bill reauthorizes the Children’s Health Insurance Program for six years. But it lacks several other Democratic priorities, most notably a permanent legal status for young immigrants who face the threat of deportation once President Trump ends the Deferred Action for Childhood Arrivals program in early March. A group of Democrats voted for the measure, known as a continuing resolution, only after it was clear that Republicans were going to be able to pass it on their own. The bill passed, 230 to 197, with 11 Republicans voting against it and six Democrats voting for it.
Stories of gray areas are exactly what more men need to hear.
The story of Aziz Ansari and “Grace” is playing out as a sort of Rorschach test.
One night in the lives of two young people with vintage cameras is crystallizing debate over an entire movement. Depending on how readers were primed to see the ink blot, it can be taken as evidence that the ongoing cultural audit is exactly on track—getting more granular in challenging unhealthy sex-related power dynamics—or that it has gone off the rails, and innocent men are now suffering, and we are collectively on the brink of a sex panic.
Since the story’s publication on Saturday (on the website Babe, without comment from Ansari, and attributed to a single anonymous source), some readers have seen justice in Ansari’s humiliation. Some said they would no longer support his work. They saw in this story yet another case of a man who persisted despite literal and implied cues that sex was not what a woman wanted.Some saw further proof that the problems are systemic, permeating even “normal” encounters.
The President of the United States of America once lambasted the reality TV show Shark Tank. It would seem that he’s not too keen on actual shark tanks, either.
Based on an interview with the adult actress Stephanie Clifford, who performs under the name Stormy Daniels, it appears that Donald Trump is afraid of sharks. That the self-avowed least racist person is deathly scared of great whites. “You could see the television from the little dining-room table, and he was watching Shark Week, and he was watching a special about the U.S.S. something and it sank, and it was like the worst shark attack in history,” Clifford recalls. “He is obsessed with sharks. Terrified of sharks. He was like, ‘I donate to all these charities and I would never donate to any charity that helps sharks. I hope all the sharks die.’”
Senator Jeff Flake explains his speech on the Senate floor in defense of the press—and talks about what he’s planning next.
Jeff Flake seems intent on finishing his Senate career without any friends left in Washington.
Ever since announcing his impending retirement last year with a blistering speech that called out President Trump’s “reckless, outrageous, and undignified behavior,” the generally genial Arizona Republican has repeatedly made himself a target of condemnation on both sides of the aisle. His decision to endorse Democrat Doug Jones in the Alabama Special Election enraged conservatives who viewed it as a brazen partisan betrayal. His vote for the GOP tax bill, meanwhile, convinced Democrats that he was all talk and no action.
Flake took fire from both sides this week when he took to the Senate floor to denounce Trump’s vilification of the free press and his “sustained attack on the truth.” The speech—delivered hours before the president unveiled his “Fake News Awards”—drew heat from Republicans for its invocation of Joseph Stalin, and derision from Democrats, who accused him of performative moral preening without any substance behind it.
The national-security adviser is one of the biggest hawks in the Trump administration.
In the increasingly urgent, dramatic debate about the North Korean nuclear threat, National Security Adviser H.R. McMaster stands out in the Trump administration as the strongest advocate of a hawkish position. But where do H.R. McMaster’s views on North Korea really come from? Why, to pose a question The Atlantic’s Uri Friedman recently did, is he so worried about North Korea? Notwithstanding the suggestion, in Friedman’s piece and elsewhere, that McMaster’s views represent some kind of heresy of nuclear deterrence, his worries must be seen in light of how he views Kim’s motives. Indeed, those motives mean the possibility of military action against North Korea could be understood not as a “good thing,” but as the “least bad.”