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.
She lived with us for 56 years. She raised me and my siblings without pay. I was 11, a typical American kid, before I realized who she was.
The ashes filled a black plastic box about the size of a toaster. It weighed three and a half pounds. I put it in a canvas tote bag and packed it in my suitcase this past July for the transpacific flight to Manila. From there I would travel by car to a rural village. When I arrived, I would hand over all that was left of the woman who had spent 56 years as a slave in my family’s household.
A Washington Post report suggests the president's son-in-law and adviser sought to give Moscow information he wanted to conceal from America's own intelligence agencies.
Why did Jared Kushner seemingly trust Russian officials more than he trusted the U.S. government?
Friday evening, The Washington Post broke the story that, according to an intercepted report by the Russian ambassador in Washington to his superiors in Moscow, Kushner sought to use secure communications facilities at the Russian Embassy to correspond directly with Russian officials. The Russian ambassador, Sergei Kislyak, reported that the proposal was made in December, after Trump won the election but before he had taken office. The conversations reportedly involved Michael Flynn, the former Trump national-security adviser who was fired after it was revealed that he lied to administration officials about the content of his conversations with Russian officials.
The permissiveness of Republican leaders who acquiesce to violence, collusion, and corruption is encouraging more of the same.
In the annals of the Trump era, May 25, 2017, will deserve a special mark. Four remarkable things happened on Thursday, each of which marks a way that this presidency is changing the nation.
The first remarkable thing was President Trump’s speech at the NATO summit in Brussels. Many European governments had hoped—which is a polite way to say that they had suggested and expected—that Trump would reaffirm the American commitment to defend NATO members if attacked. This is the point of the whole enterprise after all! Here’s how it was done by President Obama at the NATO summit after the Russian invasion of Crimea:
First and foremost, we have reaffirmed the central mission of the Alliance. Article 5 enshrines our solemn duty to each other—“an armed attack against one … shall be considered an attack against them all.” This is a binding, treaty obligation. It is non-negotiable. And here in Wales, we’ve left absolutely no doubt—we will defend every Ally.
The condition has long been considered untreatable. Experts can spot it in a child as young as 3 or 4. But a new clinical approach offers hope.
This is a good day, Samantha tells me: 10 on a scale of 10. We’re sitting in a conference room at the San Marcos Treatment Center, just south of Austin, Texas, a space that has witnessed countless difficult conversations between troubled children, their worried parents, and clinical therapists. But today promises unalloyed joy. Samantha’s mother is visiting from Idaho, as she does every six weeks, which means lunch off campus and an excursion to Target. The girl needs supplies: new jeans, yoga pants, nail polish.
Listen to the audio version of this article:Download the Audm app for your iPhone to listen to more titles.
At 11, Samantha is just over 5 feet tall and has wavy black hair and a steady gaze. She flashes a smile when I ask about her favorite subject (history), and grimaces when I ask about her least favorite (math). She seems poised and cheerful, a normal preteen. But when we steer into uncomfortable territory—the events that led her to this juvenile-treatment facility nearly 2,000 miles from her family—Samantha hesitates and looks down at her hands. “I wanted the whole world to myself,” she says. “So I made a whole entire book about how to hurt people.”
While he avoided major blunders in the Middle East on his first foreign trip, he may come to regret his failure to affirm U.S. support for the alliance.
Presidential trips are hard to assess. George H.W. Bush threw up on the Japanese prime minister; he was sick. Bill Clinton went to China without going to Japan, a big no-no. Someone threw a shoe at George W Bush; he ducked. President Barack Obama failed to meet with human-rights activists in China. His speech was censored on Chinese television.
These all passed for big problems. Then again, those were different times.
The bar for President Donald Trump on his foreign trips this past week was, by comparison, unusually low. Everyone expected problems. Trump famously knows very little about foreign policy. In his March 17 meeting with Angela Merkel, the chancellor of Germany, he confessed he had never heard of the Transatlantic Trade and Investment Partnership or the G-20. She made him a colorful map of the Soviet Union’s sphere of influence, which he apparently liked. So, when Trump embarked on a nine-day trip of five countries, it seemed particularly ambitious. Most new presidents go to Canada or Mexico.
Borrowing from other cultures isn’t just inevitable, it’s potentially positive.
Sometime during the early 2000s, big, gold, “door-knocker” hoop earrings started to appeal to me, after I’d admired them on girls at school. It didn’t faze me that most of the girls who wore these earrings at my high school in St. Louis were black, unlike me. And while it certainly may have occurred to me that I—a semi-preppy dresser—couldn’t pull them off, it never occurred to me that I shouldn’t.
The president’s business tells lawmakers it is too difficult to track all its foreign revenue in accordance with constitutional requirements, and it hasn’t asked Congress for a permission slip.
Days before taking office, Donald Trump said his company would donate all profits from foreign governments to the U.S. Treasury, part of an effort to avoid even the appearance of a conflict with the Constitution’s emoluments clause.
Now, however, the Trump Organization is telling Congress that determining exactly how much of its profits come from foreign governments is simply more trouble than it’s worth.
In response to a document request from the House Oversight Committee, Trump’s company sent a copy of an eight-page pamphlet detailing how it plans to track payments it receives from foreign governments at the firm’s many hotels, golf courses, and restaurants across the globe. But while the Trump Organization said it would set aside all money it collects from customers that identify themselves as representing a foreign government, it would not undertake a more intensive effort to determine if a payment would violate the Constitution’s prohibition on public office holders accepting an “emolument” from a foreign state.
Should you drink more coffee? Should you take melatonin? Can you train yourself to need less sleep? A physician’s guide to sleep in a stressful age.
During residency, Iworked hospital shifts that could last 36 hours, without sleep, often without breaks of more than a few minutes. Even writing this now, it sounds to me like I’m bragging or laying claim to some fortitude of character. I can’t think of another type of self-injury that might be similarly lauded, except maybe binge drinking. Technically the shifts were 30 hours, the mandatory limit imposed by the Accreditation Council for Graduate Medical Education, but we stayed longer because people kept getting sick. Being a doctor is supposed to be about putting other people’s needs before your own. Our job was to power through.
The shifts usually felt shorter than they were, because they were so hectic. There was always a new patient in the emergency room who needed to be admitted, or a staff member on the eighth floor (which was full of late-stage terminally ill people) who needed me to fill out a death certificate. Sleep deprivation manifested as bouts of anger and despair mixed in with some euphoria, along with other sensations I’ve not had before or since. I remember once sitting with the family of a patient in critical condition, discussing an advance directive—the terms defining what the patient would want done were his heart to stop, which seemed likely to happen at any minute. Would he want to have chest compressions, electrical shocks, a breathing tube? In the middle of this, I had to look straight down at the chart in my lap, because I was laughing. This was the least funny scenario possible. I was experiencing a physical reaction unrelated to anything I knew to be happening in my mind. There is a type of seizure, called a gelastic seizure, during which the seizing person appears to be laughing—but I don’t think that was it. I think it was plain old delirium. It was mortifying, though no one seemed to notice.
Preston Brooks, Greg Gianforte, and the American tradition of disguising cowardice as bravery
You wouldn’t say that Preston Brooks sucker-punched Charles Sumner in the Senate chamber in 1856—but only because he used a cane. Brooks, a South Carolina congressman, began bludgeoning Sumner, the anti-slavery Massachusetts senator, while Sumner wasn’t looking, and beat him unconscious as Sumner was still bent under his desk trying to stand up.
Brooks and his supporters in the South saw the incident as an act of great valor, as the historian Manisha Sinha writes. Brooks bragged that “for the first five or six licks he offered to make fight but I plied him so rapidly that he did not touch me. Towards the last he bellowed like a calf.” The pro-slavery Richmond Enquirer wrote that it considered the act “good in conception, better in execution, and best of all in consequence.” Other “southern defenders of Brooks,” Sinha writes, praised Brooks for his “manly spirit” and mocked Sumner for his “unmanly submission.” It would have been manlier for the unarmed Sumner not to have been ambushed.