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.
Biology textbooks tell us that lichens are alliances between two organisms—a fungus and an alga. They are wrong.
In 1995, if you had told Toby Spribille that he’d eventually overthrow a scientific idea that’s been the stuff of textbooks for 150 years, he would have laughed at you. Back then, his life seemed constrained to a very different path. He was raised in a Montana trailer park, and home-schooled by what he now describes as a “fundamentalist cult.” At a young age, he fell in love with science, but had no way of feeding that love. He longed to break away from his roots and get a proper education.
At 19, he got a job at a local forestry service. Within a few years, he had earned enough to leave home. His meager savings and non-existent grades meant that no American university would take him, so Spribille looked to Europe.
Many point to unromantic 20-somethings and women’s entry into the workforce, but an overlooked factor is the trouble young men have in finding steady, well-paid jobs.
TOKYO—Japan’s population is shrinking. For the first time since the government started keeping track more than a century ago, there were fewer than 1 million births last year, as the country’s population fell by more than 300,000 people. The blame has long been put on Japan’s young people, who are accused of not having enough sex, and on women, who, the narrative goes, put their careers before thoughts of getting married and having a family.
But there’s another, simpler explanation for the country’s low birth rate, one that has implications for the U.S.: Japan’s birth rate may be falling because there are fewer good opportunities for young people, and especially men, in the country’s economy. In a country where men are still widely expected to be breadwinners and support families, a lack of good jobs may be creating a class of men who don’t marry and have children because they—and their potential partners—know they can’t afford to.
A long time ago, beds were expensive—but there's more to it than that.
With a guest in town occupying the second bedroom of our Manhattan apartment, my three-year-old son, a notorious sideways sleeper, bunked with my pregnant wife and me. Too many snores and little feet in the back of my neck, I relocated to the sofa, where I was blessed with the best night’s sleep I’ve had in months.
As a self-diagnosed insomniac, a good night’s rest for me lasts anywhere from three to five hours. I generally break up the slumber with walks around the apartment, followed by lying awake and unearthing inconsequential paranoia that, come morning, will not live up to the hype. When I hear people claim they get eight hours of sleep each night, they might as well be talking about the Loch Ness Monster, or alien life. All three are things I suppose it’s possible someone may have encountered, but I cannot personally confirm their existence.
The transcript of the president’s conversation with The New York Times throws his shortcomings into greater relief than ever before.
“Now Donald Trump has finally done it” is a sentence many people have said or written, but which has never yet proven true. As Trump gained momentum during the campaign season, errors that on their own would have stopped or badly damaged previous candidates bounced right off.
These ranged from mocking John McCain as a loser (because “I like people who weren’t captured”), to being stumped by the term “nuclear triad” (the weapons of mass destruction that he as U.S. president now controls), to “when you’re a star ... you can grab ‘em by the pussy” (my onetime employer Jimmy Carter had to spend days in the 1976 campaign explaining away his admission to Playboy that he had sometimes felt “lust in the heart”), to being labelled by an in-party opponent a “pathological liar,” “utterly amoral,” and “a narcissist at a level I don't think this country's ever seen” (the words of his now-supporter Ted Cruz). I kept my list of 152 such moments in the Time Capsule series as the campaign went on.
Why some progressives are minimizing Russia’s election meddling
When it comes to possible collusion with Russia, Donald Trump’s most interesting defenders don’t reside on the political right. They reside on the political left.
Sean Hannity and Newt Gingrich aren’t defending a principle. They’re defending a patron. Until recently they were ultra-hawks. Now, to downplay Russia’s meddling in the 2016 elections, they sound like ultra-doves. All that matters is supporting their ally in the White House.
For left-wing defenders like Max Blumenthal and Glenn Greenwald, by contrast, ideology is king. Blumenthal and Greenwald loathe Trump. But they loathe hawkish foreign policy more. So they minimize Russia’s election meddling to oppose what they see as a new Cold War.
The Senate parliamentarian’s rejection of important provisions of the GOP’s Obamacare repeal bill puts its status in further jeopardy.
On Friday, Senate Democrats released a list of provisions in the Republican health-care bill that the Senate parliamentarian holds can pass via a simple, filibuster-proof majority vote. Among those provisions that didn’t meet her scrutiny are the bill’s plans to defund Planned Parenthood, restrict tax-credit funding for insurance plans that provide abortions, and a six-month “lockout” period from purchasing insurance for people who don’t maintain continuous coverage.
If this preliminary guidance holds, the Better Care Reconciliation Act—which is already in dire straits—seems likely to fail.
The final assessment of the parliamentarian, Elizabeth MacDonough, is a critical step in the GOP’s strategy for passing their bill to repeal and replace Obamacare. Republicans have opted to pass their health-care legislation via the special reconciliation process, under which they can cut debate short in the Senate and thus eliminate indefinite filibusters, which Democrats would certainly use in order to block any attempt to repeal Obamacare. But bills have to follow a certain procedure—called the Byrd Rule—in order to pass by reconciliation.
The president also angrily lashed out at the media and his critics.
President Trump lashed out at the media in a Saturday morning tweetstorm, insisting his authority to issue pardons is “complete” and expressing frustration over stories that revealed Attorney General Jeff Sessions may have lied about his contacts with Russian officials during the 2016 campaign.
“A new INTELLIGENCE LEAK from the Amazon Washington Post, this time against A.G. Jeff Sessions. These illegal leaks, like Comey’s, must stop!” the president tweeted, following up by stating that “While all agree the U. S. President has the complete power to pardon, why think of that when only crime so far is LEAKS against us. FAKE NEWS.”
The tacit acknowledgement the president has been thinking about his pardon power in relation to the Russia investigation, and the qualification that no crimes but leaks had been revealed “so far” raised eyebrows among media observers.
What’s gained and what’s lost when religion becomes an individualist—or even consumerist—endeavor?
Two perceived qualities of Orthodox Judaism—authenticity and ancientness—are enticing people outside this religious tradition to pay for the chance to sample it. In Israel, secular citizens and foreign visitors willing to fork over $20 to the tour company Israel-2Go can embark on a trip to an ultra-Orthodox neighborhood, where they’ll watch men in black hats and women in long skirts buying challah bread from a kosher bakery while a guide narrates the scene. They can also pay to take a tour of the menorahs in Jerusalem’s Old City alleyways during Hanukkah; eat a five-course Friday night Shabbat meal in the home of an observant family; or hear a lecture about the different nuances of the black-and-white garb worn by men from various ultra-Orthodox sects.
On Flower Boy the rapper suggests he’s not straight—and struggles with a stigma he helped propagate.
Tyler, the Creator became famous, in part, for being hateful. When his rap collective Odd Future Wolf Gang Kill Them All (“Odd Future” is fine) caught buzz around 2010, it was because of their delirious energy and Eminem-like love of mayhem. But it was their threats against women and “faggots,” delivered in song and on social media, that elevated them from subculture phenomenon to become essay prompt and political flashpoint. The likes of GLAAD and the band Tegan and Sara declared Tyler poisonous and asked the music industry to stop supporting him. Theresa May, back when she was home secretary of the U.K., took the extraordinary step of banning him from her country because his lyrics “encourage violence and intolerance of homosexuality.”
Amidst the no-shampoo revolution, a look at global hygiene habits
Cleanliness, it turns out, has been one dirty trick. One reason early-20th-century Americans ramped up their weekly baths to daily showers is that marketing companies capitalized on the insecurities of a new class of office drones working in close quarters. As Gizmodo wrote last week, to sell products like "toilet soap" and Listerine to Americans, "the advertising industry had to create pseudoscientific maladies like 'bad breath' and 'body odor.'"
Take, for instance, Gizmodo's description of the philosophy of the Cleanliness Institute, which was founded by the Association of American Soap and Glycerine Producers:
The trade association wanted Americans to wash quite unwittingly after toilet, to wash without thought before eating, to jump into the tub as automatically as one might awake each new day.